Income producing real estate. Depending upon your tax situation you will get a deduction for your rental expenses, including interest and property taxes. If you have positive cash flow from the property, a portion of that income will be sheltered from tax by your depreciation deduction.
Benefits: You receive tax sheltered income with the likelihood of capital gains should the property appreciate in value.
We’ve all heard stories about taxpayers who received a check form the IRS for a large sum of money they didn’t have coming to them. What would you do if tomorrow’s mail included a government check for $1,000,000?
Well, you could cash it and say a prayer, or you could send it back to Uncle Sam. Obviously, the wise thing to do is to return it.
But what should you do if you receive a check for a refund that is due you and the check is for more money than you deserve? The answer is to deposit it in your bank and send the IRS your check for the amount in excess of what was actually due you together with a written explanation. If you simply return the government check, it could be many months before you receive a check for the proper amount due you.
A woman’s employer repeatedly promised her work near her home, but in the meantime assigned her to various job locations that required her to drive more than 24,000 miles to and from them during the year. Some of the jobs required overnight stays and some were daily round-trips. She deducted her travel for all of them
IRS objections: The travel involving overnight stays was not deductible because those assignments were “indefinite” in duration, not temporary. And the daily round-trips to and from home were simply regular commuting, which isn’t deductible.
Tax Court: Because of the employer’s promises, all the distant jobs were properly treated as “temporary”, since the woman reasonably believed them to be that. Thus, the travel on overnight trips was deductible.
And the daily round-trips were deductible too – because daily travel to a temporary job outside of one’s home metropolitan area is deductible.
Therefore, all the driving was deductible.
Defer compensation. Plans can be designed to defer salary or compensation to a later date. Under these plans, business people may elect to defer a determined amount of their income to a later year. This deferred income is then taxed only in the year received. These plans should be in writing and the decision to defer compensation must be made prior to earning that income.
There are many tax planning strategies that can be used to reduce or defer income taxes, but most of them fall into one or more of the following categories:
Professional tax advice about which strategies are best for your individual situation is the best way to keep your taxes as low as possible.
Include your children on your payroll. The kiddie tax applies only to investment income. Your child can earn $6,300 in payroll and pay no income tax. Added loophole: Shelter an additional $5,500 of payroll from tax by putting it into an IRA.
It’s been said that only 12 key IRS employees know the exact detail about how the IRS picks the returns it will audit, but most accounting professionals agree that there are certain general features in a tax return that will trigger an audit:
Although the exact variations from the norms that trigger an audit have never been public knowledge, the information is stored in the IRS computers and is developed from detailed audits of randomly selected tax returns every three years.
Transfers of money to an IRA from a pension plan. There is a 60 day time period to transfer money from a company pension plan to an IRA. If the transfer is not made within 60 days, the entire amount will be subject to income tax. Added pitfall: If you have not reached age 59 1/2, you will have to pay an additional 10% penalty.