BulldogTom Posted March 5, 2015 Report Share Posted March 5, 2015 Longtime client client of mine is doing very well in his profession. Manager for a small company that is doing very well. His income has gone from 70K to 170K over the last 10 years. Wife is a teacher making approx 60K per year. 2 children. His major deductions are CA taxes 17K, Mortgage Interest on home 11K, Charitable Contributions 12K, and Employee Expenses on 2106 - 12K limited to 7500 2% haircut. Has a rental that is throwing suspended losses for the last 3 years. Could not sell when the market tanked and will not give back to the bank (his quote - I signed up for the loan and I will pay it back). Loan is still underwater and home value still 100K less than purchase price. Steady tenants in rental, but cash flow is not positive. TP is in AMT and is losing the benefit of CA tax deduction and Employee Business Expenses. Obviously, they get no child tax credits. Has a 401K but not fully contributing. Spouse is maxing out her 403b. They were maximizing Roth contributions but went over the limit and can't make those contributions anymore. Besides taking the previous Roth contributions and moving them to 401K contributions to max out to limit, are there any other strategies they can use to reduce tax hit? Thanks Tom Newark, CA Quote Link to comment Share on other sites More sharing options...
Pacun Posted March 5, 2015 Report Share Posted March 5, 2015 Ask them to stop donating and they will save 6K. Those 6K can go to max his 401K or pay their tax bill. I wonder what a financial advisor will suggest to these people. I wish to have those issues of not being able to claim child tax credit. Quote Link to comment Share on other sites More sharing options...
ILLMAS Posted March 5, 2015 Report Share Posted March 5, 2015 A CPA friend of mine would probably say stop making so much money. Quote Link to comment Share on other sites More sharing options...
Randall Posted March 5, 2015 Report Share Posted March 5, 2015 First option, max the 401k. May also get additional employer contributions. There are other things but he should see his financial advisor on those. 1 Quote Link to comment Share on other sites More sharing options...
Lion EA Posted March 5, 2015 Report Share Posted March 5, 2015 Max out 401(k). If they have a fully taxable investment account, invest a portion in double tax-free municipal bonds. Non-deductible IRA contributions immediately converted to Roth IRAs to shelter earnings and appreciation. Work with employer for an accountable expense plan instead of un-reimbursed employee expenses. Raise rent. Pay property taxes in January instead of December. Teacher may have a 457 plan available also. Employ children re rental or start a side biz and employ children. Teacher may want a sabbatical. Hire a fee-only financial planner. Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted March 5, 2015 Report Share Posted March 5, 2015 And Tom, don't forget he could pre-pay you. Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted March 5, 2015 Author Report Share Posted March 5, 2015 And Tom, don't forget he could pre-pay you. Payment is never an issue. He had me start preparing taxes for him my second year in business. I give him a generous discount every year for his loyalty. Tom Newark, CA 1 Quote Link to comment Share on other sites More sharing options...
Jack from Ohio Posted March 6, 2015 Report Share Posted March 6, 2015 Tell him to smile and pay the tax. I wish I had his issue... Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted March 6, 2015 Report Share Posted March 6, 2015 Payment is never an issue. He had me start preparing taxes for him my second year in business. I give him a generous discount every year for his loyalty. Tom Newark, CA I was joking Tom, about timing issue. But if he's a cash basis t/p and he makes the sale this year, moving any deductible expense into this year is a good idea. Quote Link to comment Share on other sites More sharing options...
Catherine Posted March 6, 2015 Report Share Posted March 6, 2015 I was joking Tom, about timing issue. But if he's a cash basis t/p and he makes the sale this year, moving any deductible expense into this year is a good idea. Unless he expects *more* income next year... I have a few that do that dance. Quote Link to comment Share on other sites More sharing options...
WITAXLADY Posted March 6, 2015 Report Share Posted March 6, 2015 ISN'T it strange that the rich do not get any deductions and pay all the tax except that the credits start phasing out for children at $110,000! I do not think that is very rich 2 Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted March 6, 2015 Author Report Share Posted March 6, 2015 Unless he expects *more* income next year... I have a few that do that dance. He anticipates that his income will go north of 250K per year in the next 5 years. Like I said, he is doing well in his profession. In about 3 years, he hopes to buy into the company and then I have some real ideas about how to help him out. I am just looking for the bridge that will get them from now to then without giving 50% of his income gains to the IRS and CA. Selling the rental and harvesting those losses is one way to go about it, but telling someone to take a loss just for tax reasons in a rising housing market just seems like the wrong advice. Tom Newark, CA Quote Link to comment Share on other sites More sharing options...
RitaB Posted March 6, 2015 Report Share Posted March 6, 2015 ISN'T it strange that the rich do not get any deductions and pay all the tax except that the credits start phasing out for children at $110,000! I do not think that is very rich I'm missing education credits because I am a single-mother-of-three-rich-mom making over $62,000. I cannot tell you how blown away I am at that. I am getting more flowers next month because of this. 4 Quote Link to comment Share on other sites More sharing options...
Lion EA Posted March 6, 2015 Report Share Posted March 6, 2015 Don't just work on from here to there. Work on from here through the rest of his life. Retirement and future health issues. Estate plan (providing for wife, kids.) Maybe you see an S-corp in his future. Assemble a team for him that starts with you but includes a financial planner (or more than one), lawyer, investment adviser, etc. 1 Quote Link to comment Share on other sites More sharing options...
Abby Normal Posted March 6, 2015 Report Share Posted March 6, 2015 Ask them to stop donating and they will save 6K. Those 6K can go to max his 401K or pay their tax bill. Boo! I was going to say how pleased I was they were making solid donations. I see people with much higher AGI not making any donations, the cheapskates! Also, buying deductions is a losers games unless it's retirement contributions. He should def max out his 401K. 2 Quote Link to comment Share on other sites More sharing options...
Max W Posted March 6, 2015 Report Share Posted March 6, 2015 Move out of CA as so many are doing. That will save him $17K/yr. Maybe his company can open a branch in NV or WA, or one of the othe no-tax states.. Housing will be cheaper, also. Quote Link to comment Share on other sites More sharing options...
RitaB Posted March 6, 2015 Report Share Posted March 6, 2015 I'm missing education credits because I am a single-mother-of-three-rich-mom making over $62,000. 64,000. Did not mean to trick or mislead anybody. 2 Quote Link to comment Share on other sites More sharing options...
Pacun Posted March 7, 2015 Report Share Posted March 7, 2015 Boo! I was going to say how pleased I was they were making solid donations. I see people with much higher AGI not making any donations, the cheapskates! Also, buying deductions is a losers games unless it's retirement contributions. He should def max out his 401K. When I donate, I do it directly to people because I want that each penny is used by the person that needs the money not to help pay the big salaries for the executives of United Way and other organizations. Some of these executives already have air planes and more. It is nice to see how happy children and adult feel when you give them $20 in poor countries. That smile is worth it more than any tax deduction I can get. In any event, you donate because you want to feel good not because it will be tax deductible. Quote Link to comment Share on other sites More sharing options...
Catherine Posted March 7, 2015 Report Share Posted March 7, 2015 When I donate, I do it directly to people because I want that each penny is used by the person that needs the money not to help pay the big salaries for the executives of United Way and other organizations. Some of these executives already have air planes and more. It is nice to see how happy children and adult feel when you give them $20 in poor countries. That smile is worth it more than any tax deduction I can get. In any event, you donate because you want to feel good not because it will be tax deductible. Indeed. But if you want details for charities, Charity Navigator is a good source of all-in-one-place info. 1 Quote Link to comment Share on other sites More sharing options...
Lee B Posted March 7, 2015 Report Share Posted March 7, 2015 Move to Puerto Rico Quote Link to comment Share on other sites More sharing options...
jshtax Posted March 7, 2015 Report Share Posted March 7, 2015 Too bad he is not making more income or he could buy into a real estate LP that has a conservation easement arm to it.He could do it now(for 2015) but savings might not be worth the risk. Quote Link to comment Share on other sites More sharing options...
Lion EA Posted March 7, 2015 Report Share Posted March 7, 2015 Move to the Bahamas. And, bring Tom over at tax time, paying his expenses. 3 Quote Link to comment Share on other sites More sharing options...
Richcpaman Posted March 7, 2015 Report Share Posted March 7, 2015 Start developing a Deferred Compensation plan with his employer. Put those dollars away for the future. If equity is coming 5 years from now, ask for Restricted Stock units now, that can not be sold or transferred for 5 years, let some of the income be used to fund those. No income on W2, no taxes to pay. Have the employer reimburse the business expenses at a higher rate. Lower the salary some, more in reimbursement. Rich 3 Quote Link to comment Share on other sites More sharing options...
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