Individual Strategies Archives - Page 2 of 9 - 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.


Tax Planning – It’s Not Just For the Wealthy – Part 1

It's hard to escape the news covering numerous methods high net-worth clients use to minimize their taxes. A ProPublica (June 8, 2021) headline trumpets, “The Secret IRS Files: Trove of Never-Before-Seen Records Reveal How the Wealthiest Avoid Income Tax.” CNBC (September 20, 2021) highlights, “The wealthy may avoid $163 billion in taxes every year. Here’s how they do it.” Even Teen Vogue dives into the topic. If you're a taxpayer of more modest means, you may think, Hey, what about me? I can’t afford the team of high-priced tax advisers or consider many of these tax reduction techniques. Are there ways I can minimize my taxes that are legal, easy to implement, and affordable? The answer is a resounding YES. And how do I qualify? Read on for some tax planning tips that will work for you. Part One (of this two-part series) covers strategies to reduce your adjusted gross income.

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Client Alert

DeFi Games as a § 162 Activity

In our recent issue, we discussed the exponentially growing universe (or metaverse if you will) of DeFi or blockchain based gaming. In that article, I shared how dedicated players support their livelihood, especially in places with a low cost of living, by playing the games. In this issue we will explore the concept of a “Trade or Business” as defined by § 162, and how specifically how blockchain gaming meet this threshold. For a quick refresher of what constitutes a § 162 activity, see our article “Pros and Cons of Cryptocurrency Mining as a Trade or Business. Why become a trade or business? Meeting these requirements can make a difference between video games being treated as a hobby and becoming a tax benefit. Click here to keep reading.

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Retirement Tax Planning – Work for All Seasons of Life

The single best skincare tip for avoiding wrinkles is to stay out of the sun. What does this have to do with retirement tax planning? Well, much as skincare shouldn’t stop when the first wrinkle appears, tax planning for retirement shouldn’t stop at retirement. Tax planning for retirement is an ongoing balancing act that, in a perfect world, begins with the first earned income and continues for the remainder of the taxpayer’s life. The trick is to balance tax strategies that help while a client is working with tax strategies that are going to benefit the client once they retire all without having a crystal ball as to how tax laws may change in the short- or long-term future. This article is the first in a four-part series that explores tax planning strategies both before and during retirement and discusses the importance of pro-active planning before and during retirement. Keep reading to learn more…

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Tax Planning for DeFi Based Games

As cryptocurrency continues to become more popular, its reach into areas not normally associated with crypto has expanded dramatically. One of the largest areas of growth is the DeFi Gaming sector. DeFi games function like regular video games with one major difference: They are either built on or rely on a blockchain to record activity. This can allow in-game assets to be NFTs that can be bought, sold, or even used in different gaming platforms. While this is a highly desirable ability for the player, it also carries with it tax consequences that gamers have previously not had to consider. With careful planning however, these tax consequences can be mitigated. Continue reading to learn more!

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Maximizing Your Home Office Deduction

Question: Can I avoid depreciation recapture by not claiming it before I sell? Answer: Nice try. You may save yourself unnecessary worry and fear about so-called recapture, but it won’t save you any tax impact when you do sell. If you want to learn the truth about depreciation, keep reading to learn more.

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Avoiding Underpayment of Estimated Tax Penalties – Non-Traditional Strategies for Individuals

Paying your income taxes is a fact of life for most taxpayers. The annual dance of gathering, reconciling, and reporting income/deductions/payments/credits (a.k.a. filing a tax return) keeps taxpayers and tax professionals hopping during each annual filing season and beyond. If you’re a W-2 employee, your employer takes care of your tax compliance by withholding and remitting federal, state, local, Social Security, and Medicare taxes from your salary. You may also have taxes withheld from pensions, unemployment compensation, gambling winnings, and other income. It may feel as if you’re not paying taxes because all you see is your net pay after taxes. Often it’s a direct deposit, and your payslips may be available only online. If you’re self-employed or have other income not subject to withholding, you prepay your taxes by making estimated tax payments. The traditional schedule for estimated tax payments is quarterly (4/15, 6/15, 9/15, 1/15). If not followed, steep penalties can exist, even if you pay them all by April 15. But some folks have trouble with the quarterly payment schedule, cash can be tight and that estimated tax payment money you’ve set aside might really come in handy. Happily, there are strategies to keep in compliance in a way that meets your budget and cash flow needs; and there are ways to avoid those late payment penalties. Want to know how? Keep reading to learn more.

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The Bucket List (Part 2): Living Large in Retirement While Minimizing Your Taxes

In Part 1 of this series, we took a deeper dive into IRMAA planning and minimizing tax on your Social Security benefits. You play a large role in shaping your retirement years in terms of lifestyle and financial health. Think of taking advantage of the many techniques to lower your tax during your retirement years as another aspect of self-care. By treating your financial health and well-being as carefully as you treat your mental and physical well-being, you can ensure that you have resources to attain your financial goals and support yourself in the style for which you’ve planned. In my practice, I see a wide range of client behavior surrounding retirement – from no planning to thoughtful, long-range planning. Looking ahead, whether you’re working with your tax professional and financial team or whether you’re planning on your own, pays off enormously. Please read on for some additional tips and techniques for tax savings involving charitable giving, Roth IRA conversions, and minimizing capital gains taxes – and two more examples.

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Client Alert

Don’t Overpay: Determining the Fair Market Value of Cryptocurrency Airdrops

To the non-crypto enthusiast, the term “airdrop” may conjure an image of a pallet of relief supplies parachuting in from above. In the cryptocurrency world, the term has a very different meaning, but conjures the same mental image. In the simplest terms, a crypto airdrop is a token that appears in your wallet without being purchased, although in some cases additional actions may be necessary to facilitate the transfer of the asset. An airdrop can take several different forms, the most basic of which is an unsolicited token that simply shows up in your wallet. This is typically done as a marketing campaign, to try to expand the user base of a new project. Generally, only a nominal amount of the token is distributed. Many times, this type of airdrop is done maliciously as part of a phishing or dusting attack. The vast majority of these airdrops are unwanted; they function as cryptocurrency’s version of “junk mail.” Other airdrops are used to reward users of a particular protocol for their past behavior. Typically, this will take the form of a governance token or some other newly minted token. Occasionally, the new token will automatically be deposited in the recipient's wallet, but most of the time the user will need to connect their wallet to a website and actively claim the reward. You may also be required to pay a gas fee to enable the transfer. Many airdrops of this type contain tokens of substantial value, so proper determination of when receipt takes place and what the fair market value (FMV) is can have considerable impact to tax. While the two previous examples are the most common form of airdrops, they are not limited to the above. In practice, any unsolicited token received is generally considered an airdrop. This can also apply to non-fungible token (NFT) and game-based environments. Small differences in the facts and circumstances of the airdrop may have outsized impacts on taxability and your planning opportunities. Keep reading to learn more.

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