Individual Strategies Archives - Think Outside the Tax Box

Individual Strategies

By Peter J Reilly CPA

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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What Is This Worth, Exactly? Determining Fair Market Value of Non-fungible Tokens for Charitable Schedule A Deductions

Value is in the eye of the beholder; or was that beauty? This is especially true for those infamous monkey portraits on the internet. Non-fungible tokens (NFTs) have exploded in popularity and can carry with them substantial tax consequences. Due to the volatile nature of the digital asset market and coupled with the lack of similar assets, it can be exceptionally difficult to determine the fair market value (FMV) of NFTs. Gift giving and donations can become much more complicated when NFTs are involved. New Fangled Technology For the noobs, an NFT is a type of cryptographic token that exists on a blockchain. As the name suggests, the tokens are not fungible, meaning each asset is unique and can't be interchanged for one another, the way that dollars or bitcoins can. Every NFT represents a unique asset with a unique value, however, determining what that value is can be quite difficult; The market for buying and selling NFTs can be extremely volatile. Some NFTs may quickly lose value or have no value at all. When a taxpayer donates an NFT to a qualified charitable organization as a way to reduce tax, the FMV is a required piece of information. To find out how to do this properly, keep reading.

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Charitable Deduction Rules – No Excuses – Acknowledgements

There is a story I heard even before I started doing tax work when I was a hotel night auditor. It was about a guy named Joe who ran a luncheonette where he also sold newspapers and candy bars and the like. Joe’s Place was across the street from Our Lady of Perpetual Responsibility, a Catholic parish. Joe would see Father Mulcahey carrying a heavy bag every Monday morning. The good father was heading to the bank with the Sunday collection. One day Joe invited him in for a cup of coffee and proposed a win/win. Joe was always running out of change on Sundays. So how about if Father Mulcahey has the ushers count the coins and bring them over, Joe would write a check for the coins, and the father will just have Joe’s check to bring to the bank on Monday? Then, Joe would deduct the check written to the church as a charitable deduction. It was a great plan and it worked well for several years until the IRS audited Joe and a skeptical IRS agent called on Father Mulcahey about Joe apparently being Our Lady’s biggest donor. After all, he had the canceled checks. So if a canceled check to church on Sunday won’t work to document your charitable deduction, what will? Keep reading to find out!

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Who You Gonna Call? Not the IRS – A Guide to IRS Online Tools

You don’t have to be a tax geek to know the IRS has trouble picking up the phone. Old habits die hard. If you have a tax question, what do you do? You call the IRS. Good luck with that. You’ll be on hold for a long time if you can get through at all. The IRS initiated a call-back feature, but it’s not always available. The hold music is uninspiring; sometimes, after holding for hours, you get the dreaded “courtesy disconnect.” Yikes! Let’s face it. The IRS has a full plate; years of doing more with less have crippled the agency. Congress is quick to excoriate the IRS for poor service but keeps piling on more tasks (without necessary funding). Luckily, the IRS is working hard to provide more and better online applications and resources. There’s a lot out there, some well-known, some not so well-known, click here to take a tour and discover which shortcuts will help you most.

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Client Alert

Self Rental Tax Dilemma: Are Your Deductions at Risk?

It’s challenging at times to understand the passive activity loss guidelines. Many taxpayers are not fully aware of the rules or how they could affect investments and transactions. There are some details that, if not taken care of in advance, could have serious detrimental tax effects. The way to handle self-rentals in relation to the passive activity loss rules is one of these subtleties. Although many professionals know the self-rental regulations, there are some circumstances that can result in a loss of desired tax benefits. To continue learning about a general overview of the self-rental provision and the passive activity requirements and how to maximize your deductions from them, keep reading. You will also learn the effects of selling an operating company with a self-rental property still on the books.

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Retirement Tax Planning – Having a Rough Year? Turn Lemons into Lemonade by Using Business Losses to Offset Roth IRA Conversions

A ROTH conversion can be a very powerful tool for your retirement. While you don’t receive a tax break for deposits to your ROTH account, qualified withdrawals from the account are tax-free, even earnings. This is an excellent way to avoid tax increases. Let’s say your taxes rise due to increases in tax rates, or because you earn more, which catapults you to a higher tax bracket, ROTH IRA conversions can save you a ton of money in taxes over the long term. The disadvantage, of course, is that tax is due on the amount you convert based on the value at conversion. But many times, such as when you are in a temporarily low tax bracket, have large deductions during the year, or in a year with business losses, can provide optimal opportunities to convert with little to no tax expense. Looking for more strategic times to convert? Keep reading to learn more.

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Client Alert

TAX PLANNING – IT’S NOT JUST FOR THE WEALTHY – Part 2

In Part One of this series, we looked at strategies to reduce adjusted gross income (AGI). But the planning doesn’t stop there. We call deductions that reduce AGI “above the line” deductions. But wait, the tax saving opportunities don’t stop with AGI. Even with the higher standard deductions courtesy of the Tax Cuts and Jobs Act (TCJA), there are many opportunities for taxpayers of modest means to find “below the line” tax savings. Let’s explore the many ways you can reduce your taxable income and whether you maximize your tax benefits even more with tax credits. Keep in mind that a tax deduction reduces your taxable income A tax credit reduces your tax dollar for dollar and, in some cases, the credits are refundable, meaning you can get additional tax benefits even after reducing your taxable income to zero . Read on for some tax planning tips reducing taxable income and maximizing credits that may work for you.

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Home Sweet Domicile – There’s More to State Residence Than a Driver’s License

Voter registration, a drivers license, and day counting are what come to mind when people think about residence for state income tax purposes. There is no question that those basics are very important and ignoring them can kill your cause. Nonetheless, many other factors can enter into a determination, including church attendance and pets. That’s because you will generally be a resident of the state in which you have your “domicile.” And domicile as a concept borders on the mystical. It is your true home, it remains your domicile until you abandon it and establish a new one. Yet, establishing your domicile in a state with no (or low) income taxes can be lucrative. In some cases, this can represent millions of dollars all by avoiding state income tax. The natural progression of a business owner’s life can also include exiting said business at substantial profit. Your domicile at the time of the transaction can be pivotal in determining how much of that profit you’ll be left with in retirement. To learn more about how to do this, keep reading.

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