Category: Taxes
Want to Defer or Even Eliminate Real Estate Taxes?
With real the real estate market at an all-time high, we are going to go over 1031 exchanges, which can help you defer or even eliminate real estate taxes. Simply put, a 1031 exchange is a swap of one investment property for another that allows capital gains taxes to be deferred. The term gets its name from IRS code Section 1031. But – and this is important – you have to begin this process, and the 1031 must be in place before sell the investment property. Then, from that closing date, the person selling the investment property has 45 days to identify the replacement property to buy and has 180 days to close on the new property. To obtain 100% tax-deferral, the exchanger needs to reinvest all the net proceeds from the sale and replace any debt paid off with either new debt or new cash. Most exchangers buy a property of equal or greater value than the old property. These are often called “like kind” exchanges. Remember, exchanges are very flexible. An exchanger can sell any type of real estate used in a trade or business or for investment and replace it with any type of property used in a trade or business or for investment. You can sell residential property and buy commercial property. You can sell an office building and buy a shopping mall. The rules are very flexible. Let’s say that you bought a property for $400,000 15 years ago, and now it’s worth $700,000. Some people might think you only have to pay taxes on the $300,000 gain
Foresight is 2020: Year-End Tax Planning and Beyond
It can be challenging to think through all the tax planning you need to do by the end of the year. There’s a lot to consider, and although it may seem early to think about taxes, now is the perfect time to make changes for tax filing after the new year. I always tell my clients, call me well before the new year, so we have time to plan ahead. After the new year, there’s nothing you can do about last year’s taxes. One of the strategies our clients find most helpful are bunching deductions. Essentially, that means accelerating your write-offs into one year to try to get above the standard deduction. That was a challenge for many people last year since it was the first time for all of us filing under the Tax Cuts and Jobs Act of 2017, but this year the only change is a slightly increased standard deduction over last year - $24,400 for Married Filing Jointly, and $12,200 if you’re single. And, by bunching charitable gifts, medical expenses, or even your state and local taxes into one year, you may be able to realize significant savings. Just keep in mind real estate and state and local taxes are still capped at $10,000. Another useful strategy is what’s call the Backdoor Roth. Essentially, this is a way for people with high incomes to sidestep the Roth’s income limits. Basically, you fund a traditional IRA and then convert it. That’s good news because it then allows your money to grow tax-free. But, it can be complicat
Were Your Taxes a Costly Surprise This Year?
There’s been a lot of confusion this year, as we all file for the first time under the New Trump Tax Law. Some people are finding that their returns are lower, or that deductions they’ve always depended on have gone away. The biggest cause that we see for a lower return is a lack of tax strategy and planning in advance – most strategies have to be in place by the end of the tax year – not at filing time. There are estate planning implications as well – for example, if you’re considering a ROTH conversion, which can be a great strategy, there used to be q “do-over” period you had in case something happened after the fact, or if you changed your mind. However, that’s no longer the case. There are two parts to this; 1) being proactive, and 2) investing for tax efficiency, because taxes have the ability to take the largest bite out of your portfolio and your returns, and, it’s important to remember that it’s not what you make – it’s what you keep. That means working with a team to build a portfolio that takes advantage of taxable, tax-deferred, and tax-exempt accounts, understanding your tax bracket under the new law, and choosing investments that are tax-efficient, and, as much as possible, preparing you for the volatility and uncertainty that have been rampant in the markets. While coordinating financial plans properly is always challenging, it is especially challenging today given with in
The Power of Coordination
At the Lineweaver Companies, we believe a team approach to coordinating all your financial, legal, tax, and insurance needs helps save you time, money and worry. For example, we had clients who were both close to retirement, and unfortunately the husband had been diagnosed with terminal cancer. The first thing we did was to work with them to make sure his pension was triggered in such a way that the wife could receive a greater lifetime benefit - almost a million more dollars than she would have otherwise received. At the same time, in this sort of situation, you have to consider powers of attorney – and other basic estate planning documents that everyone should have, like wills, and even if trusts make sense for your particular situation. There were also huge student loan balances of more than $120,000. But, because they kept the loans entirely in the father’s name, when he passed, the debt was forgiven. But what many people don’t know is that the forgiveness of debt – in this case student loan debt - is considered income by the IRS – and therefore taxable. As you can imagine, in this case it was significant: an additional $40,000. However, we were able to work with the family and the IRS to get the entire amount forgiven as well – so they ended up having the debt and the tax bill forgiven. Given the pension payouts and their savings, they had significant assets that needed to be managed eff
In Focus Tarriffs
If 2017 lulled market participants to sleep, then the turbulent start to 2018 has been a wake-up call. Just when the dust seemed to settle on February’s bout of market volatility, investors are now contemplating the impact of a proclamation authorized on March 9th to impose 25% and 10% import tariffs on steel and aluminum respectively. Canada and Mexico are temporarily excluded contingent upon renegotiation of the North American Free Trade Agreement (NAFTA). The President stressed flexibility to adjust tariffs for specific countries and left the door open to more tariffs. This is sure to be a fluid issue and will take time to play out. We will monitor the situation to assess reactions from U.S. trading partners. Key Points: President Trump has persistently concentrated on policies aimed to incentivize corporations to invest domestically. In January 2017, President-elect Trump proposed a Border Adjustment Tax (BAT) that was eventually scrapped. Four days after his inauguration, President Trump met with executives from the big three U.S. automakers to discuss how to bring automotive manufacturing jobs to America and discourage outsourcing from Mexico. At that time, President Trump threatened to impose a 35% tariff on imported vehicles, also eventually scrapped. Weak U.S. dollar policy could be an alternative to tariffs. Immediately following his meeting with President Trump, Ford CEO Mark Field told reporters “the mother of all trade barriers is currency
Avoiding Costly Mistakes with Your IRA Distributions
At age 70 you need to be aware of these rules. If you have retirement accounts, the IRS has allowed you to have assets growing in those accounts without paying income taxes on the income or gains. At age 70 ½, the IRS wants to begin taxing those accounts by making you take money out, whether you want to or not. Required Minimum Distributions (RMDs) are one of those facts of life that many dread, and that make life even more confusing and complicated. Let’s try and reduce the confusion. For retirement account owners, the RMD rules apply to Traditional, SEP and SIMPLE IRAs, qualified plans like 401ks, 403(b) and governmental 457(b) accounts. The RMD rules do not apply to Roth IRA owners, but they do apply to Roth IRA beneficiaries. If a non-spouse inherits a Roth IRA, they are required to take RMDs no matter what their age is, just like the non-spouse beneficiary of all retirement accounts. A word of caution: if you inherit an IRA from someone other than your spouse, you must begin taking RMDs the year after the death of the owner, not when you reach 70 ½. Penalty for non-compliance, 50% of the amount you should have withdrawn! Generally, your first RMD is due for the year you reach age 70.5. However, you need not start receiving distributions from your retirement account until your required beginning date (RBD). Generally, your RBD is April 1 of the year following the year you reach age 70.5. If you are still employed at age 70.5 and you parti
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