Gift leaseback: How would you like to get a double deduction for your businesd equipment?
Concept: Give away depreciated property to relatives and lease it back. You have mostly depreciated the equipment and now get to deduct the lease payment. Thus, you get a double deduction for equipment. In addition rent payments aren’t subject to social security and Medicare.
You can do this technique with anyone such as your spouse, kids, grandkids, nephew, siplings, parents or significant other. This works best with relatives in low tax brackets that you will be supporting anyway. However, it can also work with spouses. You get a full deduction in your business for the lease payments, but the spouse picks up the payments for income tax only. There is thus a saving in social security and Medicare. Pretty neat when you think about it.
This becomes perfect for kids who are away. You can put the assets in trust and lease them from the trust. Moreover, if someone sues you after this technique is in place, the assets are protected from law suits since you don’t own them. Thus, you have asset protected yourself too. Some states require a trust to both own and receive the funds if the beneficiaries are minors. Thus, you should go to a good tax professional before you set this up.
Avoid Cohan Rule: George Cohan was a brilliant actor and producer but kept lousy tax records. The courts, perhaps because the judges loved his plays, allowed him to reconstruct expenses. Sadly, lawmakers did away with the Cohan rule ,which can be used for estimating expenses without proper records, for:
* vehicle expenses and mileage
* Entertainment and travel expenses
* Airplane documentation.
Even charitable deductions of $250 or more need receipts. Today, you need better records than ever.Here are the problems:
*Credit card monthly statement at gas station: shows expense,but did you buy gas or other things?
* Note in diary for gas? Although receipt isn’t required, how did you pay for it? Was fill ups reasonable for mileage used?
* Best Records: gas receipts: shows how paid and shows that you paid it and didn’t pick it up off the floor
Newest credit card scams: I just went to a sub shop to pick up an order that I called in. I paid by using my mastercard. My card was swiped and he put the card down on the counter and made a cell phone call for approval, which is standard.I then heard a click, which is the same sound when pictures are taken. I had the same model, so I knew what was going on. I immediately cancelled the card. Be aware of your surroundings
Even worse, if you don’t catch credit card errors within 30 days, you are on the hook for the balance. I had a friend who had his gym locker broken into. He looked at his wallet and found nothing stolen. However, someone charged $14,000 worth of charges. He told the company that he was in possession of his card. However, a month later,upon further examination, he found one card,which was the same kind of card as his, was from another person and expired. Someone switched his cards!
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Debt Reduction: You just received $5,000 or so and have various debts that you want to start paying off. Which one should you pay off first? This will sound counter intuitive, however, pay off the smallest debt first! Why, First it is very motivational and will keep
you at it for your other debts. Secondly, you can apply the monthly payment saved on other debts.
Moreover, if you developed a lot of debt, you need to treat the desease. Tear up credit cards. In addition, always buy real estate with at least 20% down ( and preferably more) regardless of whether the bank will lend you more money.I will get into other ways to cut your debts and reduce expenses in the future.
Getting out of debt is rather simple in concept but harder to actually undertake. By paying off the debt with the lowest balance, you free up the cash that you were making monthly on that debt and use that payment for the next lowest debt. Once that second debt is paid off, you use the monthly payment that was used on the first two debts for the remaining debts.
Asset protection: Do you own any investment real estate? Even renting out your home is considered investment real estate. If so, you have a LOT of liability that most people don’t realize. As such, most investment real estate should be owned in an LLC ( Limited Liability Company). In fact, placing each property in a separate LLC is best. Finally, ALWAYS have at least 4-5 million worth up liability insurance in the form of an umbrella policy.
Normally, to get this 100% bonus depreciation, you either have to have a net vehicle weight over 6,000 pounds, which means unloaded weight. This is difficult as best. However, meeting the gross vehicle weight test is easier. This means carrying weight,which includes the car weight, passenger weight and cargo towing weight. The Gross Vehicle Weight test is thus much easier to meet.
To use the Gross Vehicle weight test, you have to be a qualified truck or a qualifed SUV. A qualified SUV are those vehicles that carry passengers, have an integrated truck chassis and have a gross vehicle weight of over 6,000 points, as noted on the sticker found in the door jam of the driver’s side of the door.
So who are the clear vehicle winners under the new law. The anwer is:
New qualifying SUVS and new qualifying pickup trucks with gross vehicle weight of over 6,000 pounds and cargo beds of 6 feet or more.These get 100% write-off of business use.
Used qualified trucks, new trucks with less than 6 foot cargo beds, and uses SUVs can still qualify for expense elections of $25,000 plus regular depreciation.
Hybrid cars get some tax credits that aren’t as good as that of NEW qualified SUVs and pickup trucks.
If you want to maximize your deductions for used cars, you should get a pickup truck or vehicle with a truck chassis with a 6 ft cargo bed. If it doesn’t have a six foot cargo bed or bigger, you should limit your purchase to about $35,000,which should allow close to a 100% write off of this amount of business use.
Gas saving cars like Hondas get the least benefits with no bonus depreciation and no expense election. One wonders what Congress was thinking in giving heavy metal, monster gas eaters a 100% write off but giving gas saving cars MUCH less in depreciation. Someone got paid off here
Each year around this time, the holdidays are upon us, and we usually provide year end gifts. Wouldn’t it be great if you can deduct some or most of these year end gifts as well as other types of gifts such as birthday and house warming gifts? Well, you can if you do it correctly.
The general rule is if you give a business gift, you can deduct up to $25, per person, per year….period. A husband-wife is considered one person. However, where there is a will, there is a lawyer. Gifts of entertainment, such as tickets, are 50% deductible with no limit. However only the face value of the ticket and not scalpers fees or markup. Thus, if the face value of the ticket is $100 but you pay $150 to a scalper or ticket agency, you can only deduct 50% of the $100.
Candaians, however, can deduct 50% of business gifts with no limit. They are NOT subject to the normal $25 max on non-entertainment gifts.
Also, to deduct any gift and bullet proof your tax return, you need to document:
Who, why you made the gift, How much, when and what was the gift.
Thus, when you thinking about making those Christmas and Hanukkah gifts, these might be deductible if you do it correctly.
Year End tax planning: Pay all church and Synagogue dues and other charitable contributions by credit card. You get the deductions when the contributions is charged, yet get to pay the credit card next year when you get the bill. In addition, you have a receipt for the payment, which is required by law, and you get points. It is a win-win for you.
While I seem to be fixated with overlooked deductions, here are some more:
1. Sale tax is deductible if you don’t take a deduction for income tax. However, in addition to the sales tax tables that IRS provides, you can also take a deduction for large ticket items such as cars, planes, boats etc. Keep those receipts.
2. Reinvested dividends: oK, not really a deduction. These are from stocks and funds that get reinvested. You get to increase your bases by these items,which many people forget.
3. Moving expenses for job hunters: You can deduct moving expenses to move your goods and family to the new job if you meet certain tests. If you take the car, you can claim 16.5 cents per mile.