Tax planning

You would think that when it comes to wealth, accountants would have an advantage. When we think of accountants we think taxes, financial statements, and …

Unless something strange happens, the election has decided America’s next president. This blog works hard to stay apolitical. I vote and suggest you do the …

Once you reach 50 retirement planning takes on a new level of seriousness. Avoiding a setback is more important than ever as there is less time to recover.

There are tools available to help you build for retirement and plan for life in retirement. You can reduce taxes and increase income with these tools. Anybody can use these tools at any age; for those 50 and older these tools have added benefits reducing taxes and increasing retirement income.

When it comes to the blogs and other tracts providing information on building wealth, frugality carries most of the weight. And it makes sense. The greater the difference of income over spending is a strong determinant of the level of wealth an individual will achieve during their lifetime as compared to their income level. 

As important as frugality is, spending is even more important, even if it doesn’t garner the required column inches the matter deserves. Spending less than you earn is the seed money for investments and without investments it is impossible to build significant wealth.

As an accountant I see people from all spectrums of income. Frugality, even hyper-frugality, is the hallmark of those with modest levels of wealth. Even the lowest income earners can amass a half million or more in a working career when frugality is taken to religious levels, with the excess invested in equities like index funds.

Mid-levels of income also do well with only the single tool of frugality. As their wealth grows they sometimes seek out professionals to help them. These clients tend to want short consulting sessions once a year with a review at tax time. 

Then come the serious achievers. These people sometimes have modest incomes, sometimes large incomes.  Regardless their income level, these people smack it out of the park. Their level of wealth is well beyond what would be expected for their income level or level of frugality (the excess of income above spending).

Super-achievers in wealth building focus on spending more than frugality. They know spending is more important. And they know most spending drains their energy and wealth while proper spending can actually make them richer!

Yes, it asks questions about your business like what kind it is, what state(s) you operate in, your revenues, status of tax filings, who does what in the finance functions, etc, but also covers key details like a SWOT analysis (strengths, weaknesses, opportunities and threats).

Next, we learn about your life goals… not just for your business, but how your business fuels your life’s passions and dreams. 1, 3, 5, 10 and even 20 years. After all, that IS why you are working, right? Finally, we discuss your communication styles and preferences so we are both comfortable with how we will play together going forward. Ninety-five percent of preventable challenges stem from miscommunication.

Camp Accountant is officially in the books and there was money to be made and taxes to be cut. There were lots of smiling faces …

You sold a stock or rental property with a massive gain. You deferred/avoided tax on the complete capital gain by investing said gains in an Opportunity Fund. Then you decide to use the basis from the original investments as a down payment on an income property and conduct a cost segregation study. This equates to a $300,000 deduction on your tax return while avoiding tax on the capital gains!

The Tax Cuts and Jobs Act enacted late last year opened a variety of opportunities for average people to reduce their tax burden. The biggest advantage of the tax cuts for individuals is the reduced tax rates and extension of income in the lower brackets. Itemized deductions also pay a serious role in how the changes in the code will affect your final results next spring.

Gaming the standard deduction was less of an issue in the past. Now, with the standard deduction at $24,000 for joint returns ($12,000 for single filers and $18,000 for head of household) there is ample opportunity to reduce your tax bill. Exemptions are gone so many will face higher taxes in this area. State and local taxes (SALT) are limited to $10,000 in 2018 – 2025. With the standard deduction so high and SALT limited to such a low level, most people will no longer need to itemize.

For every problem there is a solution. Today we will cover each deduction on Schedule A and look for alternatives. Pulling deductions from Schedule A (even if you don’t itemize) and deducting them elsewhere on the return is akin to legally