Individual Strategies Archives - Think Outside the Tax Box

Individual Strategies

By Matt Metras, EA

Potential Pitfalls of Digital Assets and the “Kiddie Tax”

Those of us who are parents of Gen Z children know it’s “no cap ” that we have no clue what our children get up to on the internet. My son, for example, makes a lot of YouTube videos of our cat for some reason. Thankfully, he hasn’t monetized his videos (yet!), so they don’t carry any tax consequences. However, many taxpayers are finding out that their dependents have spent their time in the metaverse, defi gaming, or nfts, and as a result have engaged in dozens to thousands of taxable transactions without even being aware it. Those transactions may also trigger the “Tax on a Child's Investment and Other Unearned Income,” also known as the “Kiddie Tax.” Read on to learn more...

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Making Smarter Retirement Account Distributions by Asking When, Why, and Where

As a proactive client, you often ask your tax professional about the tax effects of taking distributions from your retirement accounts. Unfortunately, it seems that proactive clients are in the minority. More often, your tax professional only learns about your retirement account distribution when the Form 1099-R arrives with your other tax documents. Proactive tax planners can improve their tax savings strategies by asking the when, where, and why that can help reduce negative tax consequences and can make you look like a problem-solving rock star to your clients. Whether you are looking for proactive ideas to implement on your own, or you want to be a problem-solving rock star with your tax planning clients, keep reading to learn how to make smart retirement account distributions.

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Client Alert

Collections and Cybercurrency Highlights from 38th Annual UCLA Tax Controversy Institute

Four keynote speakers headline the 38th Annual UCLA Tax Controversy Institute this year. It was a terrific opportunity to hear from the top IRS executives, get their perspectives on the past year – and coming policies and programs. And, even, to be able to ask them questions. Keep reading for the in-person account!

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Retirement Tax Planning — Retirement Plans for the Sole Proprietor

Many of the same tax advantages perceived as being only available with entity taxation are also available to Schedule C sole proprietors and that includes funding retirement plans. It’s perfectly OK to start and continue to run a business as a sole proprietorship filing a Schedule C for when it makes financial and administrative sense to do so. There are a number of advantages to having a retirement account. Of course, when you contribute to a retirement account, you can deduct your contributions from your taxable income. This can result in significant savings come tax time. Additionally, the money in your retirement account grows tax-free. This means that you can potentially earn a lot more on your investment than you would if it were subject to taxation. A retirement account gives you the peace of mind that comes with knowing you have a cushion to fall back on in retirement. No matter what happens in the markets, you will always have access to your retirement savings. This can provide a great deal of security during uncertain economic times. While retirement accounts can be a great way to save for the future, there are also some potential drawbacks to consider. For one thing, retirement accounts often come with strict penalties for early withdrawal. This means that if you need to access your savings before retirement age, you may be subject to significant fees. Additionally, retirement accounts can be complex and confusing, making it difficult to keep track of your progress. While retirement accounts can be a helpful tool for saving, it’s important to be aware of the potential drawbacks before you decide as a sole proprietor whether or not to open one. Click here to explore the different types of retirement plans available to sole proprietors and the pros and cons of each.

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Client Alert

Inflation Reduction Act Clean Vehicle Credit

Get $7,500 when you buy your Telsa with this new tax credit. President Biden signed the Inflation Reduction Act (IRA) on August 16th, 2022, and the misinformation started circulating almost immediately. I’ve seen it, you’ve seen it, and this means that our clients have seen it as well. It’s our job to help them navigate these new laws to help them maximize their tax savings. Taxpayers have been able to save on their taxes by buying an electronic vehicle (EV) since 2008 . So, the tax savings are nothing new. How the tax savings work has been completely revised under the IRA. That’s where you come in as an expert advisor. The maximum credit for all clean vehicles is now $7,500. A new credit was even added under the IRA to make used EVs eligible for a tax credit. But here is the thing, battery size no longer matters. The assembly, production, and taxpayer income does matter. Not understanding the changes made to Section 30D can cost you and your client. Your client can pay an unexpected additional $7,500 at tax time and you lose a client. Or you can stay the hero, saving them $7,500. I want you to stay the hero so let’s look at the qualifications for the $7,500 under the Inflation Reduction Act.

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Fully Funding Your HSA

It's 4th quarter, soon taxpayers will be reaching out to their trusted advisors. They will want to see what they can do last minute to save on taxes. There isn't much you can do at the end of the year. Still, these taxpayers will reach out expecting you to wave a magic wand and save them a few thousand dollars. Well, this year you may be able to do just that. Even if they have already maxed out their retirement accounts. Taxpayers are not restricted from using this strategy by income or self-employment. Are you ready to add this triple tax advantaged savings tool to your bag of resources?

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Client Alert

Is a Self-Directed Crypto IRA a Good Idea?

Self-directed IRAs (SDIRAs) have long been a vehicle for less traditional investments that can't be held in a normal IRA, such as precious metals, real estate, or tax liens. Cryptocurrency is the newest addition to that list of alternative retirement savings and has exponentially grown in popularity in recent years. The rules governing SDIRAs are complex, and taxpayers can easily and unknowingly violate the rules, resulting in the entire IRA being deemed distributed and potentially subject to tax. As the famous adage says, "with great [investment] power comes great responsibility." Keep reading to learn more!

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How to Avoid Losing Valuable Noncash Charitable Contributions

The rules for noncash charitable contributions defy easy summary. On the other hand, they are not rocket surgery. Moving on from the humor, if you want to sum them up in a sentence you can use Reilly’s Seventh Law of Tax Planning: Read the instructions. Specifically, you want to read the instructions to Form 8283 Noncash Charitable Contributions. There is, of course, more to it than that, but you will find a remarkable number of disallowed deductions from not following those instructions. To be fair, sometimes there are other shenanigans going on and the instruction failures are the easiest way for the IRS to attack. Nonetheless, there is nothing to say that the IRS will not use the precedents set in those cases on your client even though they are not trying to get away with anything. To get a simplified list of what to know and implement, continue reading.

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The Tax Lives of Performing Artists

Performing artists are everywhere. Whether you’re a fan or indifferent, they’re tough to ignore. They color our world with print, broadcast, and social media coverage. We have actors, musicians, newscasters, and podcasters performing live, streaming online, captured on film/radio/television, and just about everywhere in an expanding online universe. We celebrate their triumphs, empathize with their trials, feel shocked at their gaffes, and grieve for and with them. We may not think we have much in common with performers, but we do have one commonality: We’re all taxpayers! A performer’s life may seem glamorous, but it’s hard work and not always financially predictable. The tax lives of performers are complicated. They have income and expenses, but with many twists and peculiarities. Twists and peculiarities can make it both interesting and complex when navigating the Tax Code, but performing artists need tax reduction, too. Tony Nitti said, “It has to suck to make your living as an artist.” But paying taxes as an artist doesn’t have to suck when you have a great tax plan. To read more about the unique tax planning opportunities available to performing artists, continue reading.

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