NINE TAX ACTIONS YOU WILL WISH YOU HAD TAKEN EARLIER

This past week, August 2021, someone asked me how they could pay less tax on their 2020 tax return. There are a few things, very few, that you can do a year later to help with your taxes. That’s really not the best way to implement a tax strategy.

If you want to pay less tax, you need to plan ahead. Sometimes years in advance. Here are 9 tax actions that if you miss you’re going to wish you had taken earlier.

#1: Set up a Solo 401(k) or, even better, a Solo ROTH 401 (k).

Most people associate pensions with building for the future and tax deductions in the current year. Both of those can be good reasons to fund a pension, in the right circumstances.

There is one more too. It has to do with C Corporations. If you have a profitable business, you may want consider a dual corporate strategy.

That depends on you having a C Corporation. Now here’s the really quick summary of how a Solo or Solo Roth can work well with a C Corp.

You build up income inside the C Corporation and pay a lower tax rate. Now, how do you get the money out? You can pay yourself a salary (which defeats the purpose of a dual corporate strategy.) You can take out tax free benefits. (Best answer!) You can borrow the money out with a loan to an investment LLC. (Also a great answer)

But the one thing you usually don’t want to do is take out dividends. The dividends aren’t tax deductible for the corporation but they are taxable to you on your individual tax return.

But if the C Corp is owned by your Solo Roth, the dividends received aren’t taxable. And if you’re over 59 ? years old, you can take the money out of the Solo Roth tax free.

You can defer the tax if you have a regular Solo 401(k).

There are a lot of steps to setting this up, so make sure you understand all the ins and outs and use the right advisors to set up the plan. If you do this wrong, the penalties are big.

What tax strategies are you missing out on? What you don’t know, can cost you big time! That’s why?Wednesday Coaching?exists. It’s a way to learn the things you need to talk to your CPA about, before it’s too late.

#2: Current and Timely Financial Statements

If you have a business or actively invest in real estate, your financial statements should never be more than 30 days old. Otherwise, you have no way to make good financial decisions.

If you don’t YET have a business, you still need to know what your taxable income will be. That’s the only way to plan for your tax year.

#3: Consider the Real Estate Professional Status

With this legal tax loophole, you can actually pocket cash every single month AND take a write-off on your tax return. There is nothing else quite like it.?If you (or your spouse) can qualify to become a real estate professional, you need to follow the rules on what counts for the required participation hours and what doesn’t.

Legally take the?real estate professional status.

#4: Deduct All Expenses You Can

If an expense is “ordinary and necessary to the production of income”, it’s deductible. In the right circumstances, just about anything can be deductible.

For all of your personal expenses, ask yourself: Can this be a legitimate business expense?

#5: Set Up a Pension Plan Before Year-End

Tax planning should be more than just a pension plan, but that doesn’t mean a pension isn’t a good idea. It can reduce your current taxable income and let you build for retirement without tax. You can self direct your pension and take charge of your future wealth.

If you have a business, you need to set up most pension plans before year-end. Once set up, you have until you file your return to fund it. But you can’t retroactively form it.

Don’t wait!

#6: Put Your Real Estate in Service

Your real estate needs to be “put in service” before you can take any deductions. One of the hardest conversations I have to have with my clients happens after year end when they ask about the deductions for all the money they put into their new investment property.

First, we have to talk about how passive real estate losses aren’t fully deductible if your income is over $100,000.

And then I talk about making sure the real estate in service. The first year is tricky, but one thing is true. Put your real estate in service.

Real estate tax breaks are there for all of us, but you used to have to be able to afford high-price CPAs and tax attorney to find them. That is until NOW!?101 Real Estate Loopholes

#7: Start a Business

If you want to pay less tax, start a business. A side business. A ramped up hobby. An online business. A craft business.

Just make sure it’s a REAL business. This is the year of the new Form 1099-K rules. If you’re a casual Internet seller, you’re in for a very bitter surprise.

Perhaps more than anything else, you MUST start a business this year.

Cash Internet Sellers Hammered By New Form Rules

#8: Take Crypto Losses If Applicable

Maybe you’re like a lot of my other clients who have seen their assets jump up in value. They’re ready to sell, but there is one big issue.

Capital gains tax.

When you have a lot of capital gains tax, there are a number of strategies you can use to minimize the tax hit. I’m surprised that more people don’t know about these.

Sell your crypto that has gone down in value.

If you still like the crypto, buy it back.

You can’t do that with stock. It’s called a wash sale. You can’t sell to take a loss and then buy back the same stock within 30 days. Crypto is different than stocks. Wash rules don’t apply to crypto.

Learn more about?crypto tax!

#9: SALT Limitation Workaround

To date, 17 states have come up with a new strategy that allows you take a FULL deduction for state taxes that are paid with your business income.

Learn more about the?SALT Limitation Workaround?here.

And make sure you see tomorrow’s blog. We’ll go into the workaround in more detail.