Expert advice bombards the casual observer on a daily basis with ways to tax plan and achieve the greatest benefit for your unique situation. But like pop radio love songs, over-identification with what you hear can lead to misunderstanding and error. Understand that the advice you might read in the paper or see on television is not poor and misguided; it is generalized for a large, anonymous audience. Without the proper education on the laws and consequences relating to your pending transaction or event, you could find yourself in a less than ideal situation.
You can save yourself headaches and money with just a five minute phone call discussing and planning with your accountant. We might even catch something you did not take into consideration and help you save money on the transaction too.
It’s that time in your life where you want to buy a house. You find yourself tiring of the annual landlord notice informing you the rent is jumping 20-30% on your lease renewal. Have you considered how much this house purchase might save you in taxes every year due to the interest expense and property tax deductions? Or what other deductions you might have available now that you would be itemizing your tax return? Would this house be a permanent home, or might you want to move in five to seven years, maybe you could rent this house in the future and effectively have an annuity in place where you receive money every month for minimal work and effort on your part?
You want to go back to school, you find yourself stagnant in your career and think more education in the field could benefit you? Yes, the Lifetime Learning credit provides a $2,000 tax credit for just such a situation. However, it has a rather narrow allowance. A quick e-mail to your accountant could save you in an audit in the future.
A Business Affair
The purchasing of assets for your business is another simple thing with which a quick conversation to your accountant can alleviate trouble before it starts. The mid-quarter convention, which can drastically alter your depreciation rates, can be triggered when over 40% of your fixed asset additions for the year (excluding non-residential real property and residential rental property) is purchased during the final three months. But that doesn’t always mean you should purchase an asset earlier in the year, or wait until the following year, just to avoid the mid-quarter convention. Other factors can come into play as well. Did you have a large disbursement of your equity during the year, if so, how much basis do you have remaining? Perhaps your disbursement exceeded your current basis, so mid-quarter convention would increase your income and save you on taxes.
That iPad you purchased on your own to use on business trips? If you’re itemizing on your individual return, we might be able to deduct some of its cost on your return.
Windfalls and Big Sales
Did you luck out and win the start-up lottery? Or perhaps you received an inheritance. The maxim of paying off your debt before you invest is wise, but not always correct. Other factors can come into play which might lead to a greater benefit than just spending all of your cash on the bloated student loan debt you acquired in graduate school. Perhaps you can set aside some of your windfall toward the down payment of a house. The tax benefit from that alone might decrease your total tax burden by $10,000 or $20,000, and one quick sit-down with your accountant could determine if this would work for you.
Has your company ever provided you with stock options? That alone should trigger a discussion with your accountant. The variety of ways stock options can be granted can create different tactics necessary to minimize your tax burden. A quick search on the internet might give you the wrong advice entirely.
Don’t be afraid to contact us!
Generalizations only ever go so far, they don’t always provide the best strategy, but they can help you narrow down your options. The simple act of an e-mail or phone call to your accountant can take a broad solution and thin it out to the right answer. Or it might open a door otherwise unnoticed.
But don’t think that once a tax-related transaction happens, there is nothing left to do, nothing left to talk about. We can plan around some transactions after they happen. We can warn you of something you might not have seen coming. What you don’t tell us might hurt you. We are only one quick e-mail away.
Author: Chris Sittner, CPA, Tax Senior
This blog post is a summary and is not intended as tax or legal advice. You should consult with your tax advisor to obtain specific advice with respect to your fact pattern.