Demystified Blog Archive #42 - Mid-Year Tax Planning

Today, I will keep this intro brief. Consider mid-year tax planning. Period.

Here are a few mid-year planning ideas your CPA should be asking you about.

Do you need to add an entity or change how an entity is taxed?

Now is the time to begin looking at adding an entity or changing how one of your existing entities is taxed. Knowing the right time to add an entity and knowing the right entity to add can save as much as $10,000+ per year in taxes. Remember, the entity needs to be in place in order for the tax savings to occur.

When we create a comprehensive tax strategy with a client, it's not uncommon for an entity to be created knowing that once it reaches a certain level of income, an election will be made to change how the entity is taxed. Missing this election or not making it at the ideal time can be a very costly tax mistake.

Optimizing how you take money out of your entity is another effective way to reduce your taxes. The amount that is taken and how it is taken can have a huge impact on your taxes.

Now is a good time of year to check in on how your entities are paying you because if changes need to be made, there is still time left in the year to make those changes without having to do one big adjustment at the end of the year.

Do you need to shift income?

Shifting your income from a higher tax bracket to a lower tax bracket by paying your children for bona-fide services they provide to your business is also a great tax strategy.

In addition, there are more advanced income-shifting strategies we can use with parents, grandparents, etc. using entity structuring, gifting, etc.

Are considering any large business acquisitions including real estate?

Purchase a piece of equipment, vehicle, etc. before year end makes good. There is bonus depreciation to consider for equipment, cars, and trucks.

Begin thinking about closing on that rental property deal before year end. We can take deductions for certain closing costs, mortgage interest, mortgage insurance, real estate taxes, and depreciation (Including bonus depreciation for real property).

Are you considering a healthcare strategy?

Considering a healthcare strategy might include changing your information on the exchange, exploring insurance plans outside of the exchange and paying the penalty, setting up an HSA (typically low out-of-pocket medical expenses), setting up an HRA (typically for high out-of-pocket medical expenses), or a healthcare sharing ministry.

Are you considering a retirement strategy?

Consider setting up your Solo(k) which should be properly set this up before 12/31/18. Also start considering maximizing contributions your Pension, IRA, Roth IRA, SEP, SIMPLE, 401(k), Roth 401(k), etc.

All of these types of qualified plans and IRA’s can be self-directed and combined with your healthcare strategy to maximize contributions and tax deductions.

Are you considering doing business in multiple states?

Sales tax, Property, GST, VAT, etc. should all be reviewed for property reporting procedures, assessment of value, etc. There are also ways we can legally reduce state-level taxes through credits, discounts, subsidies, etc.

Are you considering doing business in multiple countries?

Foreign entities, foreign banking, foreign residency, citizenship, etc. should also be considered for the nature of the individual and the nature of the business. There are major tax incentives to open a business, invest, etc. into a foreign country, a well-capitalized banking system, and a stable currency not financed by huge amounts of debt.

Have you considered an asset protection strategy?

This is a good time of the year to consider this strategy.

Have you considered an estate planning strategy?

Again, this is a good time of the year to consider this strategy.

Is your documentation in place?

Documentation is a great way to successfully get through an audit. It is also a great way to increase your tax deductions because proper documentation leaves less room for deductions to get missed. Documentation includes keeping proper receipts, keeping mileage logs for your business vehicle and keeping hour logs if you claim real estate professional status.

Documentation is best when it is kept current. An auditor can usually tell when someone has gone back and created their documentation after-the-fact. Don't get behind with your documentation - now is the time to get caught up.

Is your bookkeeping up-to-date?

Bookkeeping is one of the most powerful tools in a tax strategy. Without up-to-date bookkeeping, it is impossible to determine if anything in your tax strategy needs to be adjusted in order to maximize tax savings.

Now is the time to get caught up! Or, start working with a professional to get you caught up!

Of course, there is always additional information you should consider when considering mid-year tax planning. And, you should always be working with a team of professionals to help mitigate the risk of any investment.

To your investment freedom