47 - Tax Reduction/Management Techniques

Question 1

How to wash sales affect tax loss harvesting?

Answer 1

If you don’t buy back substantially different securities after you sold for a loss, you will trigger a wash sale that will defer your loss and not take it in the current tax year.
Note - you can buy back the securities sold for the gain and not trigger the wash sale rules.

Question 2

Does a Section 1031 like-kind exchange defer taxation?

Answer 2

Yes

Question 3

Does a Section 529 plan defer taxation?

Answer 3

Yes

Question 4

Does the purchase of zero coupon bonds defer taxation?

Answer 4

No. Zero coupon bonds are taxed on imputed income, even though no coupons payments are actually received.

Question 5

Does the sale of property to a family member under an installment note defer taxation?

Answer 5

Yes

Question 6

What is tax loss harvesting?

Answer 6

Selling securities at a loss to offset the gains from the sale of other securities in the same tax year.

Question 7

If a person is in the same tax bracket this year and next, what could be done (without changing tax brackets) that would lower the taxes they pay. (By just moving around when they pay things they pay for anyways)?

Answer 7

Key - they currently are taking the standard deduction.
Group their deductions (i.e. accelerate donations) so that itemized deductions exceed the standard deduction in one of the two tax years (as opposed to being just under it for both, wasting those deductions)