The holidays are nearing and it's that time of the year when we begin to create our holiday wish list and begin to budget our money for all the things we will be buying.
For many of us, the holiday season is a wonderful time of the year but it can also be one of the most stressful.
The reason: money.
There are many ways that we save money for the holidays: working extra hours, budgeting, and bargain shopping, to name a few.
However, during these busy holidays seasons, we must not overlook one of the primary ways in which we can save money...
and that is Tax Savings.
One of the most powerful ways in which to save taxes is the strategy commonly referred to as Year-End Tax Planning.
This is a process that should occur during the fourth quarter of every year when taxpayers work with their tax and financial advisors to determine actions that should be taken before December 31 to save significant taxes on this year's income.
There are countless strategies available for year-end tax planning depending on the taxpayer's own unique situation.
The common thread, however, with all the strategies, is that the action items generally need to occur before December 31.
In essence, year-end tax planning is a legal way for you to plan your activities and defer payment of taxes into future years.
You may be asking yourself, "What are the benefits of year-end tax planning?" First, it could result in some pretty significant tax savings as it is one of the most powerful tools when it comes to tax minimalization.
The second benefit is cash flow.
We all know that cash flow is one of the key essentials to success, and paying less taxes results in more money for you to invest and enjoy.
The third benefit of Year-End Tax Planning is leverage.
By taking the time now to gather your financial documentation for year-end planning, not only are you able to save money on this year's taxes, but it could also reveal some action steps that you can take in future years to minimize your overall taxes.
As a real estate investor, what are some year-end tax strategies that may be applicable to your situation? One of the ways in which we can reduce our tax liability is to shift income into future years.
For example, if you are selling one of your properties at the end of the year for a gain, consider closing on the transaction until after December 31st.
By doing so, you have strategically deferred the gain on the sale and the related tax liability into the following year.
The same strategy can be used for other types of income that you are expecting to receive (option payments, late fees, vending, etc).
For those income items that you are expecting to receive close to year-end, consider delaying those payments until the beginning of the following year.
This essentially allows you an entire year to use, invest, and grow that money on a tax-deferred basis! On the flip-side, if you are expecting to sell a property for a loss, it may make sense to structure the transaction to close before December 31st so that you can receive the tax benefit from that loss in the current year.
Another common technique that applies to real estate investors is a process known as "expense acceleration".
Essentially, this is where the taxpayer takes a look at what type of expenses they should incur before December 31st in order to take advantage of the tax deductions for those expenses.
Here is an example: If you have repairs for your investment property that are inevitably going to be made in the beginning of the following year, one of the things you can do in year-end tax planning is to accelerate those repairs.
By incurring those repair costs before the end of the year, you are now able to take a deduction for the repair on this year's tax return and in turn decrease your tax liability.
This technique can also work well for mortgage payments.
Generally speaking, many of our mortgage payments are due at the beginning of each month.
But if you can prepay your mortgage payment prior to December 31st, you have in essence accelerated your deduction for interest expense into the current year.
This strategy can also be used for other types of expenses such as painting, replacing parts of flooring, improvements, and landscaping to name a few.
Now here is another tip - contact your vendors and see if they will accept credit card payments.
If so, then you have just strategically taken action towards significant tax savings without any money out of pocket! In this article, we shared some common year-end tax saving strategies that are available to real estate investors.
However, as in any tax planning opportunity, it is unique to your own situation.
For best results, take a look at the whole picture...
and that includes your real estate activities, personal activities, other investing activities, and financial plans for future years.
Year-End tax planning is a complex but powerful tool that can significantly increase your earning and investing potential by reducing tax liability.
So be proactive, and work with your tax advisor to see what you can do before December 31st to legally reduce your 2009 tax bill!
For many of us, the holiday season is a wonderful time of the year but it can also be one of the most stressful.
The reason: money.
There are many ways that we save money for the holidays: working extra hours, budgeting, and bargain shopping, to name a few.
However, during these busy holidays seasons, we must not overlook one of the primary ways in which we can save money...
and that is Tax Savings.
One of the most powerful ways in which to save taxes is the strategy commonly referred to as Year-End Tax Planning.
This is a process that should occur during the fourth quarter of every year when taxpayers work with their tax and financial advisors to determine actions that should be taken before December 31 to save significant taxes on this year's income.
There are countless strategies available for year-end tax planning depending on the taxpayer's own unique situation.
The common thread, however, with all the strategies, is that the action items generally need to occur before December 31.
In essence, year-end tax planning is a legal way for you to plan your activities and defer payment of taxes into future years.
You may be asking yourself, "What are the benefits of year-end tax planning?" First, it could result in some pretty significant tax savings as it is one of the most powerful tools when it comes to tax minimalization.
The second benefit is cash flow.
We all know that cash flow is one of the key essentials to success, and paying less taxes results in more money for you to invest and enjoy.
The third benefit of Year-End Tax Planning is leverage.
By taking the time now to gather your financial documentation for year-end planning, not only are you able to save money on this year's taxes, but it could also reveal some action steps that you can take in future years to minimize your overall taxes.
As a real estate investor, what are some year-end tax strategies that may be applicable to your situation? One of the ways in which we can reduce our tax liability is to shift income into future years.
For example, if you are selling one of your properties at the end of the year for a gain, consider closing on the transaction until after December 31st.
By doing so, you have strategically deferred the gain on the sale and the related tax liability into the following year.
The same strategy can be used for other types of income that you are expecting to receive (option payments, late fees, vending, etc).
For those income items that you are expecting to receive close to year-end, consider delaying those payments until the beginning of the following year.
This essentially allows you an entire year to use, invest, and grow that money on a tax-deferred basis! On the flip-side, if you are expecting to sell a property for a loss, it may make sense to structure the transaction to close before December 31st so that you can receive the tax benefit from that loss in the current year.
Another common technique that applies to real estate investors is a process known as "expense acceleration".
Essentially, this is where the taxpayer takes a look at what type of expenses they should incur before December 31st in order to take advantage of the tax deductions for those expenses.
Here is an example: If you have repairs for your investment property that are inevitably going to be made in the beginning of the following year, one of the things you can do in year-end tax planning is to accelerate those repairs.
By incurring those repair costs before the end of the year, you are now able to take a deduction for the repair on this year's tax return and in turn decrease your tax liability.
This technique can also work well for mortgage payments.
Generally speaking, many of our mortgage payments are due at the beginning of each month.
But if you can prepay your mortgage payment prior to December 31st, you have in essence accelerated your deduction for interest expense into the current year.
This strategy can also be used for other types of expenses such as painting, replacing parts of flooring, improvements, and landscaping to name a few.
Now here is another tip - contact your vendors and see if they will accept credit card payments.
If so, then you have just strategically taken action towards significant tax savings without any money out of pocket! In this article, we shared some common year-end tax saving strategies that are available to real estate investors.
However, as in any tax planning opportunity, it is unique to your own situation.
For best results, take a look at the whole picture...
and that includes your real estate activities, personal activities, other investing activities, and financial plans for future years.
Year-End tax planning is a complex but powerful tool that can significantly increase your earning and investing potential by reducing tax liability.
So be proactive, and work with your tax advisor to see what you can do before December 31st to legally reduce your 2009 tax bill!
SHARE
