Individual Strategies Archives - Page 11 of 14 - Think Outside the Tax Box

Individual Strategies

By Jeff Stimpson

Should You File Your Client’s Taxes Early?

Common sense says that filing taxes as early as possible in the year gets an onerous chore off your plate and, chances are, gets your clients’ tax refund into their pockets quicker. Common sense can also be wrong if you need, as most taxpayers do, various tax-reporting forms that can arrive in early spring, if not later. There are also many other reasons you may, or may not want, to file your client’s taxes as early as possible.


Any Port in the Storm – Tax Strategies for Boat Owners (Part 1 of 2)

Ever thought of using a recreational vehicle like a boat to lower your taxes? Yes, it’s possible using the right strategies, and there’s no time like the present to make that happen. Even more than pre-pandemic taxpayers may be considering buying their own island. Those for whom buying an actual island is beyond the budget may be considering buying a boat or an RV for use as a residence, an office, or both. Whatever the type of use, there are tax strategies available for boat owners if they meet the requirements. As with any tax strategy it is important to have a full understanding of the requirements to ensure the deduction is legal and to ensure the taxpayer can substantiate the deduction should the tax authorities examine the return. This is the first of two articles discussing the tax strategies available to boat owners. Part 1 focuses on using a boat as a residence, but if that doesn’t meet your needs, stay tuned because Part 2 will cover boats for business use (including as a home office). Why not consider both options and see how your tax savings can help fund your floating condo? Keep reading to learn more.

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Other State Taxes to Consider During Relocation – Not Just Income Tax!

Looking to save money by moving to a low tax state? If so, determining how much you will save in taxes by moving is a question many people are often asking that doesn’t have a simple answer. Many people miss out big time because they simply think about state income taxes. However, there are so many other types of taxes that can be just as important when thinking about moving to a new state. Simply because a state has low (or no) income taxes doesn’t necessarily mean it’s a low overall tax state. Other taxes such as sales tax, payroll tax, and property tax can have just as big an impact on your taxes as the traditional income tax. Don’t get hit with unexpected “stealth taxes,” when moving to a low tax state, while state tax free states are great, out of the seven states without an income tax, three are not in the top 10 lowest tax burden states. Keep reading to learn how to choose the lower tax places to live.

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Is Your Spouse Innocent or Injured? Part 2: The Innocent Spouse

Jack Sprat did pay no tax. His wife paid all of hers. But when they filed a joint return, She learned she owed all of his! This is the heart of the innocent spouse! The innocent spouse filed a joint return with a balance due – but didn’t really create the tax obligation. S/he did everything right, paid all the proper withholding or estimated tax payments. Yet, s/he suddenly finds out that the spouse has a balance due and doesn’t have the money to pay it all.

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How to Deduct Even More Expenses as Self-Employed Health Expenses

Question: Can I still deduct self-employed health insurance if my spouse has insurance through their employment? Answer: You may potentially qualify for the deduction even if your spouse has insurance through their employment. Healthcare costs seem to be always on the rise, and if you’re self-employed if can be tough to find an affordable option for a single participant plan. The good news is, the Self-Employed Health Insurance deduction provides an “above the line” write-off helping you not only save tax through a lower taxable income, but it also helps to slash your Adjusted Gross Income (AGI). Lowering your AGI also helps mitigate the disadvantages of AGI based tax laws. For example, some itemized like medical expenses and charitable contributions can be hampered by the amount of your AGI. In other words, AGI determines how much of certain deductions and tax credits you can take. There are three steps to qualifying for this deduction including some special provisions that let you sweeten the deal. Did you know you can even write off dental and long-term care insurance as self-employed medical expense? You can! Here’s how to get even more write-offs if you’re self-employed.

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Here’s How a Family Limited Partnership Can Protect Your Assets From Tax

Planning for your future generations often means being real about how much (or how little) will be left behind for your heirs. If you’re like most, it is difficult to imagine telling your grandchildren they may be forced to sell the family home to pay off the IRS in estate tax. One solution is to look for a legal way to move assets and money to your children (or others) while minimizing your tax. A Family Limited Partnerships (FLP) might be the perfect mechanism for you to accomplish this. These special types of partnerships provide solutions to two main issues: asset protection and estate tax reduction. Not only will this help you create a legacy of giving, but it will also ensure that the family business or home actually stays, “in the family.” Asset protection is important as it limits your risk exposure and liability to lawsuits, bankruptcy, and other claims. FLP’s are used to move assets during your life leaving the amount of your taxable estate smaller, and helping you gift much more than the law typically allows. But if you’re thinking this means giving a seat to Jr. at the board room table, think again. You can optimally set up this arrangement to ensure you maintain control until you are ready to step down. All is not rosy in the world of FLPs however. These types of arrangements can be viewed by the IRS as abusive tax shelters to transfer wealth tax free. Keep reading for an in-depth look at FLP’s.

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Reduce Your Taxes by Making Your Spouse a Business Partner

Question: Can I save S/E tax and create passive income by having my spouse own my entity? Answer: Potentially, but it depends on a number of factors. If you’re a sole proprietor or single member LLC, you’ve probably felt the sting of self-employment taxes (S/E tax). If you and your spouse work together and you’re not incorporated, the IRS generally considers you a 50/50 partnership and both spouses’ earnings are subject to S/E tax. This is true even if your spouse minimally participates in the activity. That’s right, even without a partnership agreement, if you and your spouse both share in the profits and losses of an unincorporated business, the IRS considers that you have a partnership owned equally. The IRS calculates self-employment taxes by apportioning 50 percent of the earnings to each spouse. It’s possible to pay way more than you need to if your profits are more than the threshold for Social Security. One way around this is to make your non-participating (or passively involved) spouse your business partner. But if you live in a community property state, be sure to follow these guidelines to secure your savings.

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More Free Money With the American Rescue Plan Act of 2021

On Wednesday, March 11, President Biden signed into law the American Rescue Plan Act (ARPA) of 2021, a $1.9 trillion COVID stimulus package. The ARPA contains a mix of retroactive and prospective tax breaks in the form of credits, exclusions from income, and even new tax-free grant programs. Let’s take a look at the most tax significant items in the bill.

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Moving to a Low Tax State

Looking to escape high state taxes? Perhaps the taxpayer wants to leave the gridlock, housing congestion, and cement jungles behind for the likes of slower, less expensive living? COVID-19’s long-term impact on urbanization may be uncertain, but we have already seen people moving to low-tax states because these states offer more land and outdoor space. Along with the people, many businesses are also looking to relocate to low tax jurisdictions. But before packing up that U-haul, consider how to lock in your tax savings; otherwise, there may be a nasty bill waiting for you in that new mailbox.

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