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QOTW: What are your best (and legal) tax saving strategies?
Since it's almost the end of the year, I wanted to focus our question on ideas and strategies that can help us make last minute changes to help lessen the tax burden, or to start the year with best practices.
Let's help our community with our best legally allowed options to save on taxes. Please make sure to note if it is specific to a state, asset class, or other specifics.
Want a quick list from one of our resident experts? @Ali Boone wrote a fantastic blog you can find here: https://www.biggerpockets.com/...
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Here is a couple things we do:
1. Make sure all bills are received and paid in December. If you have vendors that slow bill, call them and let them know you need them by the end of the month. Some vendors intentionally mail bills late, so you can't pay them in December, so they don't have the income on their taxes. Tell these vendors you will mail the check on December 31st, so you get the 2021 expense and they get the income delayed to 2022.
2. Look for things that may need an upgrade. I purchased a new computer this month, supplies for our short term rental and some tools. Anything you will legitimately need in the next few months, it is better to purchase now and get the 2021 deduction.
3. Consider selling investments that you may be able to take a loss on. For example, maybe you have capital gains from a stock sale and you are holding a dog stock that lost money. Sell the dog and get some tax benefit.
4. We are preparing our tax records to pass off to our accountant. Getting everything gathered together and ready before January allows us to get everything to our CPA early and our taxes are done ahead of others.
5. One other final end of year detail is getting ready to send 1099 to any non-incorporated vendor who did over $600 of work in 2021. This doesn't reduce our tax burden today, but can prevent problems in the future.
6. We shred old tax documents and receipts as they have reached their holding period of 3 - 7 years. Talk to your tax professional about how long to hold things. Keep in mind, holding documents longer than required can create problems by raising additional questions in an audit. (Some documents need to held indefinitely such as mortgage contracts and depreciation tables, etc.)
7. The final step for us is getting ready for 2022. We are looking at any tweaks to our process to make things easier to track. We are getting templates and file folders ready for the new year.