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tax stories

Small Business, Taxes and Investing

Get a $100,000 Gift from the IRS Using Cost Segregation

In the past I shared ideas that saved you $10,000 or more per year. I also shared numerous other ways to reduce your tax burden by smaller amounts. And, of course, retirement accounts and the Health Savings Account provide plenty of tax reducing power, too.

That is all small change compared to what I share today. Today the gloves come off. Today you will learn how to peal massive amounts off your tax bill. I am talking about taking six figures and more from the IRS and putting it into your pocket legally. No jail required.

This program applies to investment properties and businesses with a building. All other can safely skip today’s post. Or you can read it and share it with someone who owns rental properties or a commercial building. You will make a lifelong friend if you do.

What is Cost Segregation?

The risk I take is getting too technical. You don’t need to understand all the deep tax terms to use this strategy so I will avoid technical jargon as much as possible.

The first thing you need to know is that cost segregation only works on buildings with an original cost basis (purchase price, plus additions) of $250,000 or more. Residential income properties, commercial properties, additions and build-outs all work. This does not include the value of the land. Example: You but a property for $450,000. Land value usually comes in around 20% of the purchase price. Therefore, $360,000 is for the building. Cost segregation works on the building portion of a property only. Also note, the higher the value of the property, the more tax benefits cost segregation provides.

The IRS says you have to depreciate a residential rental property over 27.5 years and commercial property over 39 years. This means you put a lot of money down upfront without a tax benefit.

The IRS says you can use cost segregation to separate the components of the building for faster depreciation. A typical building under cost segregation may have about half the value reclassified as 5-year property, 20-25% as 7-year property, and the remainder as either 27.5- or 39-year property.

Pictures around this post show some illustrations of tax savings with cost segregation.

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Treat Taxes Like a Game

staunton_chess_setLife in the accounting business can be difficult at times. Clients are as close to friends as you can get without actually being friends. You know all the details of their private lives. I know a divorce is imminent many times before the spouse does. I get details on illnesses in the family. I have to. Part of the tax preparation process is to know your client. When you ask about medical expenses you get the details too. In Wisconsin we have a deduction for certain private school tuition. When I ask about the kids I get the low-down on little Billy. And I don’t mind one bit. I care about my clients so I listen and interact. The line between client and friend is thin indeed.

That is why it bothers me when I can’t communicate a message to a client. Try as I may, some clients could care less about their taxes. They are willing to overpay their taxes to get out of all the reporting. They don’t understand the amount of money left on the table.

A few weeks ago I emailed a client reminding them to verify their retirement contributions and to provide a log for business miles and business overnight stays. To be honest, I didn’t expect a response. They are awesome clients and I love’em to death, but they just don’t engage at the level I would like and it bothers me because it is costing them dearly.


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Donald Trump is an Idiot

20573038010_490c18fa3f_bBefore you fire up your email to insult my mother's choice to have children (or congratulate my good taste), here me out. This blog is devoid of politics, trust me. What I share in this post is in no way indicative of who I support for POTUS. This blog is about personal finance, financial independence, lifestyle, and TAXES. Check the top of the page; it is clear as day.

The latest news comes from Trump’s 1995 tax return. I could care less that some people think he is a good businessman who lost $916 million in one year. What bothers me is the mental morons calling Trump’s actions “genius”. Wrong! Or Trump calling his actions “brilliant”. Wrong! By the end of this post I will show you how The Donald threw away $300 million in cash. His accountant should be flayed, quartered, and beheaded for his incompetence. If Donald Trump knew how badly he screwed up on his tax return he would be spitting nails.


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Early Retirement, Lifestyle

Don’t Leave the Lights On For Me




img_20160911_111930A few months back I was in a conversation where the topic of sabbaticals arose. A member of the group worked for a company that allowed employees a one-year sabbatical in the past, but ended the practice when employees who took the sabbatical tended to never return. According to my friend it was the best employees who decided a sabbatical would refresh and recharge. What the company hoped would be an opportunity for star employees to get away from the frantic pace of life turned into an early retirement plan. I laughed heartily until I realized I have employees and know how hard it is to find and keep good ones.

Different Strokes for Different Folk

Some jobs do not have a halfway point for people to stand between full employment and retirement. That is too bad. Awesome people at the top of their game have and either/or choice: stay fully engaged or dump out completely. It really sucks. All too often employers take just that approach when it is not necessary.

The best employees are the ones who find balance between work and personal life. An employee’s personal life is why they show up for work even if they really love their work. The employee who works ungodly hours for the company never has time to think clearly about solutions for clients or the company. It is the silence between the words where the meaning exists. Without silence between the words or white space between words on the page it all ends up muddled. Sure, you can still read or hear if you focus hard enough, but the energy required is immense and you are still prone to misunderstand some of what is being communicated.Continue reading

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Reduce Your State Tax to Zero with an Inversion




Americans who read the news even poorly know large corporations use tax inversions to avoid massive amounts of taxes due the U.S. government legally. What most Americans don’t know is they can use the same strategies on a smaller scale to never pay state income tax again. My guess is fewer than ten accounting firms in the U.S. utilize these strategies to protect their clients from state taxes. Today I will show you how to use the tax inversion without the help of an accountant.

A tax inversion happens when a major corporation buys a smaller company in a low or lower tax country or municipality. The acquiring company then moves its headquarters to the acquired company’s country. We will not get into the minutia of corporate tax law as it is not the focus of this post. We will use techniques of large corporations where they are applicable to small businesses, landlords, and retired taxpayers living or working entirely within the U.S.

Individuals living and working in a single state will not find value in this discussion. Each state has its own set of tax laws to reduce income taxes a lot, but what we are interested in today is driving the state income tax to zero for business owners and landlords with a few simple moves. Your circumstances will determine how you structure your finances to avoid state income tax.

Small Business

High tax states like California, New York and Wisconsin place a massive burden on business owners of those states. Competing against rivals in low-tax or no-tax states is difficult to impossible.Continue reading

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Low Income, High Net Worth: The Best of Both Worlds




20131025_125301In the United States, and I suspect in most countries around the world, people are taxed for spending and rewarded for saving. Almost all the tax revenue raised by the federal government comes from spending. This idea taxes are too high or the rich get a better deal is false because the middle class has the best deal going for it than at any time in history.

The reason taxes are so high for many people is they spend too fucking much money! In America, for example, the taxes levied against spending are massive while savers and investors are rewarded with low or even negative tax rates. This constant complaint of taxes being too high is annoying at best. Taxes are not too high when the people bitching about them volunteer to keep paying them. Here are a few of the extra taxes you pay when you spend: sales and use tax, property tax, excise tax, and corporate tax. Yes, corporate tax! Do you think businesses don’t pass all their expenses on to the buyers of their goods and services? Of course they do. And you pony up with a million dollar smile (when you are fucking broke) and pay all those extra taxes and complain about how high taxes are.Continue reading

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Audit Proof Your Tax Return

IMG_20160818_150932The IRS has audited tax returns the last several years at a historically low rate. Individuals faced a 0.84% audit rate in 2015; millionaires, 9.55%; Schedule C sole proprietor taxpayers, 4%; partnerships, 0.51%; and S corporations, 0.40%. (Source: The Kiplinger Tax Letter: Vol. 91, No. 4) None of this makes a difference if your number comes up. Over the years I developed methods to reduce risk of audit. My clients are audited at a fraction of the national rates due to the steps applied to all tax returns leaving my office.

IRS audits are expensive even if you did nothing wrong. Hiring an accountant to navigate the audit process is time consuming regardless of guilt. Unlike criminal law, in tax matter you are guilty until you prove yourself innocent. The burden of proof is on you to provide proof of income and deductions should the government come knocking. Below are several tips to reduce your risk of getting an unfriendly letter from Revenue.

Mechanics of a Tax Return

There are a million ways to prepare a correct tax return; some lead to audit. Big numbers in certain places on a tax return invite the IRS to take a look. It is easiest to illustrate using a sole proprietor’s Schedule C.

First, miscellaneous expenses should be a small number. If you have a large amount of miscellaneous deductions, break it up and add the expenses to another line deduction or list separately.

Second, large numbers on certain lines are acceptable, other lines, not. A salesperson on the road a lot will have a serious mileage deduction. An office will have more office expenses than a construction business. Whenever possible, break up large numbers into smaller categories of expense. It is reasonable toContinue reading

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10 Ways to Legally Stop Paying Taxes




Years ago I started a book project called The Zero Percent Tax Bracket. The idea was to write a book with all the ways a person can bring in money and legally not report it as taxable income. As I started pulling information together it became clear marketing such a book would be difficult. Since I was not focusing on tax protesting or other such BS it would not attract the wing nut crowd nor was I interested in becoming the next Charles Givens. A book called The Zero Percent Tax Bracket would probably languish on the back shelf of a bookstore with only modest sales. The idea was sound but I did not like the marketing plan.

Today I am resurrecting the idea. As a book it would need a serious shove to turn a profit for the publisher; as a series of blog posts it is an excellent way to outline all the ways to line your pocket without owing a penny in tax. You will not find all of these tax-free methods listed in the tax code. It is the unusual interpretation of tax law that always appeals to me as long as jail time is not involved. (Jail time might be okay if it is a fairly short stint of three-hots-and-a-cot, plus free healthcare at the expense of the taxpayers. Taxes are no fun, but collectingContinue reading

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