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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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CURRENT EDITION
Editor’s Pick: Tax Planner Faces Malpractice Claims Over Decades-Old Tax Advice—What Went Wrong?
In a case that every tax professional should take note of, the prominent law firm Sidley Austin LLP finds itself defending against claims that it provided faulty tax advice over two decades ago, leading to massive IRS liabilities for a family. The plaintiffs, the Cáceres family, are seeking to recover $7 million after settling with the IRS, claiming Sidley’s advice on a complex asset liquidation set them up for disaster. The kicker? The lawsuit was filed over 25 years after the advice was given. So, how are the plaintiffs still able to pursue the case? It all boils down to a claim of fraud—and how that could toll the statute of limitations.
Navigating IRS Penalty Relief and Forgiveness
Yes, the IRS does forgive some tax penalties. The IRS refers to this forgiveness as penalty abatement. Abatement is the act or process of reducing or removing something. In this case it is removing or reducing a penalty. But penalty forgiveness is not a blanket offer that everyone qualifies for the way the radio ads make it seem. There is a process that the IRS has for requesting and granting abatement. It is up to the taxpayer to prove that they qualify for abatement. That’s where you come in.
From The Government And Not There To Help You
The story of James J. Maggard has some interesting and possibly valuable lessons. The one that strikes me as particularly important is that it makes it crystal clear that disproportionate distributions contrary to a corporation’s governing documents will not blow its S election. That does not mean that disproportionate distributions are just fine and that you don’t need to address them. There is a practical lesson about being careful who you take on as fellow shareholders. And there is another slightly odd lesson, that almost makes me want to create a new law of tax planning: Don’t deliberately involve the IRS in your business disputes. Their job is not to help you.
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Think Outside the Tax Box provides tax reduction strategies along with practical
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