The Mark Perlberg CPA Podcast
The Mark Perlberg CPA Podcast
EP 80 - Tax Savings AFTER END OF THE YEAR
High-income earners can still take steps to reduce their past year’s tax burden even after the year has ended. This episode discusses strategies like improving record-keeping, utilizing Qualified Opportunity Zone funds, and leveraging solar investments to create significant savings.
• Emphasizing the importance of detailed record-keeping for identifying write-offs
• Highlighting the benefits of Qualified Opportunity Zone funds for tax deferral
• Discussing cost segregation strategies to enhance property depreciation
• Exploring contributions to tax-deferred retirement accounts post-year-end
• Detailing solar investments and associated tax credits as recovery methods
If you are making over $750,000 a year and you don’t have an advanced tax reduction strategy, you need to get with us and have a conversation about some of the more advanced things we do.
Your tax savings is going to give you all your down payment back. The rest is just profit coming in. It's like you're investing in real estate for free. He was a limited partner, so there was zero risk and he really liked you. This was one of our more risk adverse clients. All right, welcome to the show.
Speaker 1:I always love nerding out with experts in the world of money and finance. If you're a high income earner and you're worried about your taxes and how much you're going to owe in 2024, you might be out of luck. The books have closed. A lot of these opportunities had to be done before the end of the year. The transactions had to close, so you should have played with somebody. And now, if you're stressed, there's not a whole lot we can do, right? Well, there might still be some opportunities for some of you guys here to still reduce your taxes, while I would say the bulk of the opportunities for most of you guys listening have passed. Ideally, we would have started to work with you since at least the middle of the year to start developing and implementing and maximizing your tax saving with the tax plan. But there's still opportunities here to reduce your taxes, even though the year has ended. So I'm going to drive into five opportunities where you can still reduce your prior year taxes even though that year has ended. So these are five strategies that you may be able to use and we're going to see if those apply to you Now.
Speaker 1:The first one is going to be a simpler idea and maybe some low-hanging fruit here, but one idea I want you to consider here is having good books and records and making sure you identify all of your tax deductions. So well, first off, if you didn't do any tax planning last year, I already know you've messed up a little bit here, especially if you're an entrepreneur and a high income earner, especially if you're an entrepreneur and a high income earner. So you may also be messing up in terms of keeping records of your books and expenses, and one of the things that you can do now is have a conversation with a tax advisor to help identify what write-offs are you entitled to and go back into your logs and your credit card expenses and your records and see what kind of write-offs you've encountered and maybe you forgot to record. Maybe you have them on multiple bank accounts Got something in my eye that won't go away, anyways, so you can go back into your records and pull out those transactions and as long as you have the proper purpose of those items, then we can write them off and plug them into your 2024 return, as we do them and what we want to think about here. So common misdeductions if you're a rental property owner, if you own rentals, people are always forgetting property insurance, property taxes, all these little things here. Just being cognizant of what write-offs you're entitled to, when is travel deductible? When is meals deductible? What you can do is actually and we tell our clients to do this is if you export all your transactions to excel from your bank accounts and then you can plug them into our templates and then you can auto-classify them and put together an income statement so we capture those write-offs, you may find that you have more than you really think, maybe even the home office as well.
Speaker 1:Here and now there's a misperception that if the expense doesn't go through your LLC, it's not tax deductible. Well, that may be true for an S-corp or a C-corp. However, if you have a partnership or a sole proprietorship, or you don't have a name for your entity and you just have rentals or a business, that's not under an LLC, in all those instances, we can still create write-offs against your income to reduce your taxes. So there's one idea that you can capture your write-offs Also mileage, mileage deduction. No transactions there, just capture, have the records in place before you file.
Speaker 1:I have another opportunity for you to consider, however, and this is going to be qualified opportunity zone funds. So qualified opportunity zone funds I'm getting distracted. There's something in my eye. Qualified opportunity zone funds can still be implemented after the year has ended. So when you have qualified opportunity zone funds, you're deferring the taxes on capital gains events. So when you have a capital gain and that could be from real estate stock even if it's a sale of your residence or any capital gain event machinery equipment, et cetera, et cetera, you have 180 days to deploy the capital gain amount into a qualified opportunity zone investment. Even if the year has ended, you still have that 180 days. So the capital gain event is in December. You still have the first five months, roughly, of the following year to deploy those capital gain funds into a qualified opportunity zone.
Speaker 1:Now why might you want to do this? It will defer the taxes as of right now. That's going to be deferred until the end of 2026. As of right now, that's going to be deferred until the end of 2026. There's some law that may extend out that deferral. That may come in April of 25. We'll see. But also, not only do you defer your taxes, but the exit the future exit on this new investment, if you hold it for 10 years, is completely tax free. This is really exciting for people looking to diversify and diversify into passive investments and build a huge bucket of tax-free income.
Speaker 1:Some people will compare a Roth IRA to a Qualified Opportunity Zone Fund. They'll say a QOZ is like a supercharged Roth IRA. You don't need to wait until you're 59 and a half to take the money out and you could add an unlimited amount that gets funneled into this Qualified Opportunity Zone Fund investment and it grows and it compounds and then when you exit you pay zero taxes at all. Another advantage of QOZs is if you invest in real estate where they're doing cost sags and you have depreciation and let's say you can't even use the losses. Let's say you don't even have real estate professional tax status. Well, that's all right, because when you exit out of the property, those unused losses are now activated as you close out that activity and then you can actually not only do you not pay any taxes on the capital gain of the exit of this QOZ Qualified Opportunity Zone Fund, you actually might find that you get a tax reduction. You actually reduce your taxes on a huge capital gain event. Really really interesting stuff here.
Speaker 1:Now let's talk about something else we can do to reduce our taxes even though the year has ended Cost segregation. Have you guys ever heard me say that word before? Cost segregation. Even if the year has ended, we can still reduce our taxes with cost segregation studies. If you have rental properties and you think you might have real estate professional tax status, or if you maybe have short-term rentals, or if you own a building where you conduct business, these are all opportunities to accelerate the depreciation and create significant losses that can offset your other sources of income. Or you can use the cost segregation to offset other real estate capital gains events. So, even though the year has ended, if you have the ability to reduce your taxes by accelerating the depreciation, accelerate that depreciation from the cost seg after the year has ended and you can still reduce your taxes.
Speaker 1:Sometimes we don't even know if the cost segregation study makes sense until we get the client's return. As we wait and we see how the dust settles and what that liability is. We'll say, hey, we can run a cost seg or this property and that property to offset the capital gains on this property and the income here. Sometimes we'll do a cost segregation study on a property purchased one or two or several years ago, so we don't have to do that cost segregation study in the year of purchase or even in the first year of filing. So when you have someone who understands cost segregation and how to utilize it and the law and really how to be strategic as they do the return Believe it or not you can be strategic. As you do the return and how you decide to depreciate these properties you may be able to find that you can create six figures of tax savings. In fact, we once amended a client's return, so this was like two years after filing, and the result of the amendment was about $90,000 of tax savings, mostly from cost segregation, and they forgot to write off their home office.
Speaker 1:Okay, we have another opportunity here Retirement accounts. Even if the year has ended, you can still contribute money into your tax-deferred retirement accounts. I'm talking about your 401k and your traditional IRA, and what's really cool about this is now you can kind of take advantage of the time value of money. Or let's say you're not sure if you have the money to defer yet and put into those accounts at the end of the year. You can wait on that decision. So to give you an example how this might play out here with tax-deferred vehicles, let's say we end the year with really good profit here. We don't want to pay taxes on all the profit, but we also don't want to put all that money into this 401k and IRA because we might need it for the following year.
Speaker 1:We're not really so certain about how business is going to shake up next year. Are we going to get the clients we need? Is that deal going to close? I don't really know. Well, we can wait. And maybe it's March, april, may and we find that we're actually looking pretty good this year and we don't need the cash. So instead of paying taxes on that income from the prior year, we contribute funds to our 401k or IRA, and now the prior year taxable income has dropped and we now have greater clarity and more time to make that decision, and then you have the opportunity to take advantage of the time value of money you have access to that cash and to collect interest in it or whatever that cash is doing for you a little longer before you make that contribution. So this is a really cool strategy to add to the mix.
Speaker 1:Now, what's important here and I don't expect you to know if this makes sense for you or whether to do it, but if you have the ability to create these retirement accounts, these tax deferred retirement accounts, what I want you to think about here is just open them up. They have to be opened before the end of the year. So if you're listening to this and you say, oh, that would have been really cool to have a solo 401k for my business, or an IRA I could put money into, or a SEP IRA, but you didn't set anything up and the years passed then you already missed out on that opportunity. Now I'm going to give you one final example of how we can reduce your prior year taxes, and this is another really cool idea that not a lot of advisors are aware of or capable to advise on, because we're a higher end service and we have more resources and time to research. We're doing this with our clients, and this is solar. So when you invest in solar or you purchase solar, you have access to tax credits and those tax credits can not only reduce your current year taxes but prior year taxes, and you can only offset up to 75% of your current year taxes. Anyways, this may be a little more complex for you guys, but what's going to happen here is, if you invest into, we can help clients where we'll facilitate them renting out solar to third parties, but we will also help them with installing the panels on their residences and on their rental properties, and that not only gives them bonus depreciation, reduces their taxes, but the tax credits can also reduce their taxes. You can offset up to 75% of your taxes in the current year and then you start pulling away at the prior year taxes and we can amend or file a form what we call Form 1045, and that allows you to get taxes back from the prior years. You can go back up to three years and you can finance the purchase of these solar panels, which makes it a lot more affordable and practical. And how awesome is it to be able to reduce your taxes for less than the cost to create that tax reduction and reduce costs of the cost of your business, the cost of energy and your overhead, your overhead, and when you reduce your overhead into your rentals, your profitability goes up, roi goes up and maybe the value of your real estate goes up if you have a commercial piece of real estate where you're evaluated based on the overall profit margin, roi on those activities.
Speaker 1:Another thing I didn't mention here. I just want to backtrack a little. When we talk about going through your records, make sure you're aware of what you can reduce on your taxes. So I see a lot of people unaware of things like American Opportunity Tax Credit for educational costs. Also regular charitable deductions and dependent care credits. All of these things are little details where you can just go back into your records and just by being aware, with this and having a strong collaborative relationship with your tax advisor, you can make sure you're going to maximize your tax deductions, maximize tax savings from your prior year. There's still things to think about and be proactive and even retroactive to reduce your prior taxes. All right, hopefully I gave you some ideas here and for some of you guys who were not as proactive as you should have been this year, maybe you can go back and do some things Now.
Speaker 1:For those of you who are realizing you messed up and I would say, if you are making over $750 a year and you don't have an advanced tax reduction strategy, you need to get with us and we got to have a conversation about some of the more advanced things we do. So we advanced tax reduction strategy. You need to get with us and we got to have a conversation about some of the more advanced things we do so we can have confidence we've done everything we can to minimize your taxes or eliminate your taxes in 2025, before it's too late. Don't make this mistake again. So if that is you, I suggest you go to prosperalcpacom slash. Apply and we can see how we can help you out. Also, go to prosperalcpacom slash resources. We have lots of great stuff. At the very minimum, subscribe to our newsletter to get invited to our free live events and more wonderful information.