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taxes

Taxes and Investing

The Sweet Spot of Non-Cash Deductions

There is an old Looney Tunes cartoon where Daffy Duck is portraying Sherlock Holmes. Daffy is seated at a desk stacked with papers vigorously working the calculator. Porky Pig, portraying Watson, walks in and asks, “Whatever are you doing, Holmes.” “Deducting, my dear Watson. Deducting,” came the frantic reply.

Deductions come in a variety of flavors. We are all familiar with deductions matched with an expense. Donations to charity are deductible on Schedule A. Business owners deduct marketing expenses dollar for dollar.

There is another elusive deduction taxpayers only dream about: the non-cash deduction. The appeal of the non-cash deduction is the large write-off without a matching real world expense. Capitalizing on non-cash deductions can supercharge your retirement or debt reduction plans. The list of non-cash deductions is long. We will explore several ways you can reduce your taxes without spending a penny or taking a deduction significantly higher than the actual expense and stay out of jail in the process.




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The Ultimate Credit Card Rewards Hack

Living your dream vacation is easier than ever with credit card rewards. A litany of cards offer massive miles, hotel rooms or cash for spending a certain amount within a short period of time. And there’s the rub. How can the average person spend $3,000 and more to get bonuses of 50,000 points and up within a few months?

Enter manufactured spending. Reaching a level of required spending either requires owning a business with significant purchases, over spending your budget to get the rewards (why bother, it’s cheaper to buy the darn airline tickets) or manufactured spending. Manufactured spending takes time and requires jumping through hoops. There are also additional fees using many manufactured spending methods. And the time! Oh my god, the time to get it done. There has to be a better way.

Meeting spending requirements always required some fancy footwork. But for you, my friend, those days are over. Today I will show you how to reach nearly any spending goal you need for the vacation of your dreams at virtually no cost to you. In fact, you will probably get paid to engage my way of manufacture spending. The time requirements are nil and the whole process is easily handled from the easy chair in your living room.

If you want free vacations from now on, keep reading. The travel hack/credit card hack I am about to reveal is something I have not seen anywhere else. Even if you don’t care to travel, this strategy can drop $10,000 or more a year in your lap tax free.




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Stop Paying Your Quarterly Estimated Taxes!

 

When life is good the revenuers have a way of raining on the parade. A large year-end bonus, mutual fund distribution, or large year-end sale at your business can crimp your tax situation in more than one way. A quick call to your accountant gives you the answer: Make an estimated tax payment.

But making an estimated tax payment can hurt you! A quick payment at the end of the year to eliminate a tax liability still subjects you to an interest penalty in many cases. What you need is a quick and dirty guide on estimated tax payments to avoid nasty surprises, and even better, a way to game the system. (Who doesn’t like gaming the tax system? It’s this accountant’s favorite pastime.)

Our goal today is to pay as little as possible for as long as possible. There are two reasons for this: 1.) The longer you keep your money the longer it keeps working for you earning interest, and 2.) When you know you owe money you start thinking of ways to reduce the liability you have to eventually pay. I understand interest rates are very low as I write this. Still, keeping you money invested longer in your account is better than paying the government. If you are in the “digging out of debt” phase of your wealth building, keeping your money longer means less debt for longer. Since debt interest is significant, the later you pay the better for you.Continue reading

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Finding a Good Accountant

The topic of finding a qualified tax professional is common in my mailbox. There is no pat answer for each request so I generally ignore them. Another common request is for a referral if I am too busy. It is true I only accept a small fraction of the requests for service, but the good news is I have more staff this tax season and have been accepting more new clients than last year. The bad news is that I don’t have someone to refer you to in your area.

Yesterday I received an email that touched me. Long emails usually die before I read more than three sentences due to time constraints. This email was different. The sender asked to remain anonymous and I will honor that request. He asked: How do I go about finding a good local accountant? He wants someone local he could shake hands and sit down with to discuss his tax and financial matters. I get it. He continued: I am hoping for an idiot-proof, step-by-step guide. I don’t know where to start searching, never mind narrowing the choices.

Finding qualified professionals is a difficult task. I wish it were as easy as an idiot-proof guide, but there is no such thing. My goal today is to share ways to increase the odds you have a good tax professional on your side.

Good tax professionals are a busy group, especially this time of year. The industry has consolidated over the last few decades and many top notch accountants have retired. Making matters worse is fewer people entering the field. CPAs frequently seek employment in government and large corporations or large accounting firms. The small and mid-sized accounting practice is a dying breed. These are the same firms serving the average American family’s tax preparation and planning needs. Finding an awesome tax professional to work with you is getting harder by the day. I have a few ideas to help you land a good one, but you might not like what you here.

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Prepare Your Own Taxes the Right Way

It’s that time of year again where we need to reconcile the previous year’s income for the government. The task can be daunting, but with armies of tax professionals and online software, many people can tackle their tax return with few issues.

The trick is finding the right tax software when you plan on preparing your own tax return. The most popular online packages are dummied down versions of better tax software programs. The Q&A required by most online programs can become daunting (and time consuming) if you have any tax knowledge at all. The biggest problem is finding tax software that is professional grade that offers just enough help to not be invasive.

I want to introduce you to an online tax program I think is superior to other online software: Drake Software. The banner below is a direct link to the software for individual users. It was featured last year on Mr. Money Mustache. It also happens to be the same tax software I use in my office.

Over 50,000 tax professionals use Drake software to file over 26 million tax returns.  My office was one of the earliest adopters of the Drake interface (one of the first 200 if my ID number is any indication).

Back in the late 1980s I sought out a professional software package that was not only robust, but offered economical e-filing. Back in those days it was common for software to charge $35 or more just to e-file. Drake was an industry leader, charging only $1 per e-filed return. My office could offer free e-filing before anyone else due to Drake and their powerful software platform.

Time has only made this software better. Of course, my office still e-files for free, but it is so much more. Drake branched out into other areas of the accounting office. They also offered accounting firms like mine an opportunity to provide an alternative in the DIY tax preparation segment.

What I liked from the start was that Drake incorporated the entire professional grade platform in their online version for people preparing their own return. No other online software offers such a robust program to the general public, in my opinion. They market the program under the 1040.com name.Continue reading

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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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Year-End Tax Planning 2016




imagesThe end of the year is fast approaching. Time is running out to modify your finances to optimize tax savings. I will run down the more common ideas to reduce taxes. Keep in mind this is not a comprehensive review. Your facts and circumstances will determine what is best for you. Use this review as a guide to reduce your tax liability.

Investments

Most readers here have significant investments so we will start there. All adjustments to investments should have an economic reason beyond taxes. Reducing taxes is the goal, but the increased costs of selling can offset a portion or all of the benefit.

If you are not using an automatic tax loss harvesting program such as Betterment, now is the time to review your non-qualified (non retirement) portfolio. Mutual funds and stocks with losses can reduce the capital gains distributions of other mutual funds or ETFs. You can also report up to a $3,000 loss against other income on your federal return. Your state taxes will differ. In Wisconsin, for example, the loss against other income is limited to $500.Continue reading

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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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