Tax Strategies

Question 1

Investments

Answer 1

You can sell your investments at a gain or loss by the end of the year

If you anticipate next year you will retire or make less money then wait to sell the gain to be taxed at a lower rate

Investment decisions are really about harvesting capital gains and losses.

Question 2

Tax loss harvesting

Answer 2

This is when you offset capital gains with losses

This is good when you have an unusually high income this year or a loss - you can then use each to offset the other

Question 3

Year End Bonus

Answer 3

You expect to get one of these - best to get it in by Dec 31. You will be taxed on it in the year that you receive the income

Question 4

Contractual Bonus

Answer 4

This is a bonus that is not typically paid out till January of the following year.

The taxes due would not be due until you file that year tax return - so that may not be till a year later.

Question 5

Bunching charitable contributions

Answer 5

Because the standard deduction is so high (24,800) you can hold your contributions and give every other year to get a benefit

Question 6

Bunching Medical expenses

Answer 6

You can try to bunch these up as well to get over the 7.5% AGI rule in order to have these count.

Even if you charge a medical expense in December but pay for it in January - you can deduct it on this year’s return.

Question 7

Exercising Stock Options

Answer 7

If you think your tax bracket will be higher in 2022 then exercise this year to pay taxes at a lower level.

The same is true for the reverse. IF you think you tax bracket will be lower next year - consider waiting

Question 8

Invoices for the self-employed

Answer 8

Send invoices to customers this year to be paid before the end of the year.

Be careful about you estimated tax payments - if your income exceed your payments you will get a penalty

If you expect lower income next year consider sending out invoices till next year.

Question 9

Withholding

Answer 9

If you know that you have income this year that is not covered by withholding then you can increase your withholding by year end.

This will avoid or reduce estimated tax penalty.

You can also pay extra in your estimated tax payment.

Question 10

Accelerating and deferring income and deductions

Answer 10

If you anticipate you will make more money next year and will be in a high bracket then accelerate your income this year to take advantage of the lower bracket.

If you think you will be making lower ( like retiring) then deferring income or expenses till next year is a good idea

Question 11

When is accelerating income a good idea

Answer 11

• High income tax bracket next year
• Especially if you income is close to the threshold amounts that make them liable to the additional Medicare tax (.9% on income over 200k single and 250K MFJ)

Question 12

What is net investment income tax (NIIT)

Answer 12

The NIIT is 3.8% on cap gains, dividends, and rental property income

It is applied to high income earners: Single 200K, and MFJ $250K

Question 13

Example of accelerated deductions

Answer 13

Paying estimated state tax in December instead of January

Pay you whole property tax bill in December

American Opportunity Tax Credit - this is an above the line tax credit ( this means you subtract it from your AGI) $2,500. up to $1000 is refundable

Question 14

What are SALT deductions

Answer 14

state and local Tax - this is capped at 10K for those who itemize

This was changed in under the TCJC act

Once you reach your 10K limit - paying estimated taxes and prop tax ahead wont help you

Question 15

How is AGI Calculated

Answer 15

It is total income subject to income tax (W2, self-employment, dividends and interest)
Minus 1/2 of SE taxes you pay, alimony ( before 2019), contributions to traditional IRA

Question 16

Additional Medicare Tax

Answer 16

.9% of income above 200K singe and 250K MFJ

If you contribute to a 401K and a ROTH IRA. a Traditiona IRA will reduce your income if you are close to the threshold

Also - this will help you avoid the 3.8% NIIT

Question 17

Charity

Answer 17

Can not deduct your services

Can deduct property as well as money

If you donate stock (appreciate property) you can avoid paying capital gains on it.

Can deduct up to $600 for families filing joint returns

in 2021 you can deduct up to 100% of their AGI (Cares Act) used to be 60% of AGI and 20%

Question 18

Qualified Charitable Distributions

Answer 18

QCD’s - you can donate up to 100K single and 200K MFJ to charity directly from IRA to reduce income tax owed

Question 19

Taxation of capital gains

Answer 19

ST Cap Gains - taxed as ordinary income
ST Tax Loss - reduce ordinary income (up to $3,000) - the rest carries forward

LT Cap Gain - taxed at 0% 15% or 20%
LT Losses - go against ordinary income up to $3,000 of income, can off set ST and LT Gain

Question 20

Wash rules

Answer 20

sell at a loss and then repurchase it or similar within30 days the loss is disallowed

It does NOT apply to cryptocurrency

The 30 day rule does not apply to gains.

Question 21

Tax strategy with 30 day gains

Answer 21

If you have a loss you can sell securities at a gain to off set the loss. the repurchase the same stock. The result is that you neutralize the gain and raise your cost basis in the investment

Example: Have a $5 loss. Sell a stock for $10 that you bought for $5. Then Buy back the stock for $10. The result is that the $5 gain is erased by the loss and now you have your $10 stock with a higher cost basis.

Question 22

Giving Gifts

Answer 22

Can give up to $15,000 per person per year.

Cant give for a future benefit

Question 23

Kiddie Tax

Answer 23

Children with unearned income of less than $1,100 or a child’s earned income plus $350 (not greater than standard deduction of 12,750) - no tax

The next 1,100 is taxed at the child’s rate.
Amounts over 2,200 are taxed at single filer rates

Question 24

Roth Conversion

Answer 24

You can convert part of your IRA to a Roth and pay the tax now. This will reduce the RMD that you will need to take at 72

Question 25

Maximize retirement plan contributions

Answer 25

If you have a business - or if you are a sole prop you can set up a retirement plan - does not need to be funded until you pay your taxes.

401K 19,500 2021 (20,500 in 20220 and catch up of $6,500

If you are employed but have no retirement plan - you can make a traditional IRA contribution of $6,000 with an additional of $1,000 as a catch up.

Question 26

529 Plans

Answer 26

Can maximize these contribution

• Made with after tax dollars
• All earnings are tax free - so when you take it out - zero taxable event
• you can give up to 15K tax free ( annual gift tax exclusions) - 30K per married person
• you can give up 5 times the annual exclusion in 1 year (75K indiv or 150K married) but you can not give any addition amounts in the next 5 years - it gets averaged over the next 5 years

Question 27

HSA

Answer 27

You can set one up and contribute to it. Take money out is like FIFO

• Must have a high deductible health plan
• Contributions are tax deductible
• Cant do it and be on Medicare
• you your spouse and your dependents can use HSA
• You can invest your HSA for growth
• $3,650 in 2021 and $7,300 per family $1,000 catch up
• Can use for health care, dental and vision
• AT age 65 can take out of the HSA penalty free for any reason - but to be tax free and penalty free must be for a medical expense.
• generally can not be used to pay for private health insurance premiums - unless Cobra and while receiving Unemployment