WHEN IS A DORMITORY A TAX SHELTER?
Let’s say that your “child” is a sophomore in college and you are tired of paying rent for his apartment. What can you do? If the ave you considered buying a place for him to stay? You could deduct mortgage interest and real estate taxes, but you can’t deduct other expenses of a property used by a relative if he is not paying market rent. What to do?
My advice: Create a little college tax shelter. Buy a rental property in which 3-4 students can stay and that is a likely good investment. Charge your son rent at market rates. Pay him a reasonable amount to manage the property or make gifts to him.
With your new tax shelter, the house will pay for itself and incur few taxes. You can deduct the typical costs of maintaining a rental property: maintenance, insurance, mortgage interest, utilities, and repairs. You can deduct depreciation on the cost of the building (not the land) roughly 3.6% per year. If the rental operation loses money you can write off losses to a limited extent. More about rental properties.
To satisfy the IRS, be business like. Set up a rental checking account. Record rental expenses. Your son should send checks to you for rent and they should be labeled as such.
Editorial: Proposed tax reform will double the “standard deduction,” so the mortgage deduction may not reduce the cost of home ownership. This could reduce real estate values. Make sure you are diversifying your investments.
Contact Wis for more information.
THE MOST IMPORTANT PROFESSIONAL FOR A BUSINESS
The problem is that as your business increases, it is exciting but everything happens at once. You wish that your vendors and customers acted like partners instead of adversaries. You are excited with your business earnings but not with your tax bill. You lawyer, if you have one, will negotiate contracts but does not recognize tax problems or opportunities. As your business expands your accountant produces financial statements, but he can’t seem to handle your new tax questions. He almost seems to be on the side of the IRS. “You can’t do this. You can’t do that. How can you save taxes? What can you do?
The best professional for your business is the one that can deliver services you need.
As a former IRS tax attorney, with over thirty-five years in private practice, Wis knows about saving taxes. Wis subscribes to daily tax and estate updates from Bloomberg Law, Kiplinger and other sources and reports them to you in his e-letter, WealthWISe.
For example: Did you know that under a recent Tax Court case, an employer could reimburse its managers for attending Business School courses helpful to the employer’s business, and the reimbursement was tax-free to the managers.
Wis spend six years as a corporate counsel for a national software company. There he negotiated with much stronger parties, such as corporate partner IBM and customers like Wells Fargo and the Federal Reserve Bank. Wis was an admirer of Steven Covey (author of “7 Habits of Effective People” and win-win negotiating). Wis used Covey’s teachings to negotiate win-win contracts with these large corporations. He learned to listen to the other side and discover how to give them what they wanted without costing his company an arm and a leg. Wis secured residual revenues of millions of dollars per year.
My advice: Wis can deliver both tax and legal services for small businesses, so for most small businesses, Wis is the most important professional because Wis can be there one stop source of tax, legal and estate advice.
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THE NUMBER ONE TAX TIP
Tax season is NOT over. If you have filed your 2016 tax return, now is not the time to forget about taxes. There are things to do right now for 2017! If you have filed an extension and you have not filed your 2016 tax return you really don’t have more time. Here you have a chance to consult with a professional and save taxes in 2016 that you should not pass up. So what should you do? Contact me for *FREE 1/2 Hour Consultation:*
If you are reading this WealthWISe the number one tax tip I can give you is to use a tax professional. Don’t use an amateur. There are millions of words in the Internal Revenue Code. Most seasonal preparers and CPA’s are far from being experts. If you have not filed 2016 it is not too late to pay less for 2016! Furthermore, every day that you delay filing 2016 is costing you interest and penalties. Find out how much you can save by getting a free ½ hour consultation with Wis It is FREE. You cannot lose. Wis has the unbeatable advantage of Tax Mastery© software and he will prove it to you. And knowing Wis’s advice you can save even more in 2017.
This year Wis met new tax return clients, the “Smiths.” They didn’t worry about taxes until November when suddenly they realized their business was going to have a big year. (It could have been a big gain in the stock market or a big bonus declared by their employers). In December they were tearing around trying to buy equipment and find cash to do it and clean out their closets for Goodwill or whatever. If they had met with Wis their Tax Mastery© plan would have mapped out the actions they needed to take and they would have had months to do it. They could have taken the time to select the best piece of equipment for their business. They could have arranged the best financing.
My Advice A meeting with Wis and a Tax Mastery© analysis early in the year is the best way to start your tax planning. Tax mastery© fights taxes like nothing else. A tax client of Wis gets Tax Mastery© and so the next year’s planning with his return
Contact Wis for a FREE 1/2 hour consultation and get a taste of Tax Mastery©.
Are you one of the people who delay when it comes to estate planning, seeing it as too complicated and presenting unrealistic goals. It doesn’t have to be that way! If you have estate planning documents drafted prior to 2012, it is truly dangerous to rely on them. You may have a will or trust that leaves the surviving spouse with the inconveniences of dealing with court expenses and trustees. This common arrangement is both tedious and unnecessary for a vast majority of the population.
With over 35 years helping clients, Wis can show you easy and effective ways to achieve your goals for your loved ones. For example, Wis recently consulted with clients who just wanted to leave their home to their natural heirs. He showed them how to do it without a will or other fancy documentation. Working with Wis, you can enjoy a personal experience with an experienced professional.
If you have a will or trust drafted prior to 2012 it may be a time bomb waiting to go off. Wis can show you how to defuse it. If you have an estate planned will or trust that was drafted prior to 2012 the will or trust probably divides the deceased person’s estate into pieces and places them in trust supposedly to lower the estate taxes. This process can leave the surviving spouse with the expense and inconvenience of dealing with unnecessary trusts and trustees. This arrangement is generally no longer necessary now that more than $5,490,000 is exempt from estate tax. Furthermore, Tax Reform aims to eliminate the estate tax altogether. So who do you need? Trust busters!
Don’t leave your family with a mess. To get started with your estate planning !!RLT Email Package read on.
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Welcome to tax season! For the most effective tax preparation, be prepared! I advise clients to work with a tax pro using professional software. I use Intuit’s Proseries Professional, which provides a Tax Organizer to make sure you don’t miss a thing! (Intuit is the maker of Turbotax, Quicken, and Quickbooks). I and only I offer my clients Tax Mastery© my custom tax program that shows them how to pay the lowest legal taxes.
My goal is to provide clients with “ease and effectiveness,” sothey pay the lowest legal taxes with the least effort and the lowest tax preparation fees. To do that:
With more than thirty-five years of experience, there is so much more I could say. Furthermore, with my one of a kind Tax Mastery© program I can give you advice designed just for you to help you pay the lowest legal taxes. Call today for an appointment.
Taxable gain equals selling price less “adjusted basis.” (“AB”). AB is the cost of the property with certain adjustments. AB is reduced by depreciation. So if a taxpayer has depreciated a property for many years, its adjusted basis may be considerably reduced. The gain resulting from depreciation is often called phantom gain and the resulting tax may considerably reduce the cash you receive on the sale. A different problem arises if you have refinanced the property and spent the cash elsewhere. Once you repay the loan upon the sale you will have less cash available to pay taxes.
What do you do? There are many ways to reduce your tax. I look for ways to increase the “adjusted basis.” (“AB”). Each property is a little different and there are many factors that increase AB, so I suggest working with a tax professional. For example, did you know that property that you inherited is treated as if you purchased for its fair market value at the date of the deceased person’s death? This is called a stepped up basis.
I recently prepared a tax return for a taxpayer and added over $50,000 to her AB as follows:
* She inherited 50% of the property recently and received a stepped-up basis.
* I examined the settlement sheet for the purchase of the property and added to AB transfer tax, abstract fees, taxes, surveys, recording, legal fees, and seller’s costs paid by the buyer.
* I check the settlement sheet for similar costs for the sale of the property.
* Likewise, the costs of selling a property that are not deducted are added to the property’s AB.
* Don’t forget to include the cost of the property’s lot which should not be depreciated.
* AB is increased by the cost of improvements to the property, like a new roof or appliances.
* There’s more.
If you have been a landlord for more than one year and have prior year unallowed passive losses on Form 8582 of your Form 1040, you will probably be entitled to offset those losses against your gain. If you are selling a business or investment property, you can seller finance and sell it in installments and delay the gain. Each year you will have gain equal to the percentage of the principal received in each payment. Finally, if you enter into a “like kind exchange” of the property, which may not be an exchange at all, you can delay the gain until the replacement property is sold. This reminds me that if you obtained the property being sold as a replacement property in such a like kind exchange your basis will be based on your AB in the previously replace property. This situation is far beyond the scope of this article.
The tax rules are designed to give an employee a refund if the employer withholds properly. However many things can change this. For example, purchasing a house can generate deductions that in turn cause you to receive a refund. Wis can show you how to turn that refund into a larger monthly paycheck. In contrast, if you and your spouse both work, unless you adjust your withholding, you may end up owing quite a bit. Wis can get this under control. In fact, using Tax Mastery© Wis can identify unexpected tax savings that can reduce your tax bill and put more money in your pocket by decreasing your withholding or estimated taxes. For example, when can you deduct clothing worn on the job?
How does Wis differ from other tax preparers? Wis gives you personal attention instead of a production line approach. He prepares a custom Tax Mastery© plan, then discusses it with you personally before filing your return. Why is this critical? Read more.
A true story. A prominent Memphis lawyer (Harvard law) decided to try Wis out by bringing Wis a tax return already prepared by a well-known accounting firm. The return showed that the client had added a room to his home office. However, Wis found no new furniture on the return. In his interview with the lawyer, Wis found that the client had purchased $40,000 of antique furniture for that room, saving him over $14,000 in taxes! The accounting firm had used his tax organizer for the return, without interviewing the client.
A favorite client recently retained me after his mother’s death to help him settle her revocable living trust (RLT). His father died shortly before. My client was the trustee and sole heir under the trust. She named him in her durable general power of attorney. The Mother’s will transferred all assets to the trust. The trust distributes its assets to the son. This should have been a piece of cake. Not this time!
The bad news. His aged mother could not manage her affairs. She inherited a large IRA and failed to name a successor beneficiary. Using his Mother’s DPOA, my client asked the custodian of the IRA to name him as successor beneficiary but they refused because they saw a conflict of interest. Things got really expensive and could result in a heavy tax burden!
Bad news: With no beneficiary named after his mother died, her “estate” became the beneficiary. We had to open the estate in Probate Court. The whole purpose of the RLT was to avoid Probate.
Danger. Because an estate has no lifetime over which it could make required minimum distributions (RMD’s), in some cases, the IRS will distribute the entire IRA immediately, with resulting heavy taxes.
The good news. Fortunately, as a tax attorney, Wis was able to find a loophole that would allow the IRA to “stretch” the RMD’s over the mother’s life. However, there is still the expense of keeping the estate open for the distribution period and the cost and complexity of estate taxes. Wis intends to negotiate a transfer of the IRA directly to his client.
My advice: Never allow a retirement account to end up without a successor beneficiary. Retain a tax attorney to advise you regarding your plan beneficiaries. While many lawyers can draft wills or trusts, few of them can handle complex income tax issues like this.
Want to know more? Email Wis and request a *FREE ½ hour Consultation*.