Tax Articles

There can be no more exciting a time than to go from punching a clock to being your own boss. But starting a business means more than deductible lunch dates and setting your own hours. If you think self-employment means you get to kick back and relax, it won’t happen. Most entrepreneurs will tell you they have never worked harder.

Starting a new business takes time and money. If you do nothing else, begin with a business plan. Your investment of blood, sweat, and tears can pay off for the life of your business—as long as you make prudent choices, and a business plan will help you calculate what you’ll need and how much it will cost.

The money you invest is tax deductible, right?

Well … not always.

Don’t make the mistake of assuming all your startup costs are deductible. As long as your total startup costs are $50,000 or less, the IRS allows you to deduct a limited amount of startup costs, and also organizational costs.

On the other hand, if your startup costs for either area exceed $50,000, your allowable deductions are reduced by that dollar amount. Once you make your first sale, however, you can claim all of your business startup expenses. Read on for details.

What Are Startup Expenses?

These days no business can operate without using some form of technology. Unless you plan to use your 3-year-old laptop to run your online business, you’re going to need to purchase equipment to help facilitate your business. Oh, and you’ll need a smartphone if you want to keep up.

Of course, computers and office equipment would qualify as startup expenses. If you need to rent office space or even a cubicle in a cooperative setting, they would also qualify. However, shelf any plans to stand by the mailbox waiting for your hefty check from the IRS. Neither of these expenses can be deducted until after your first sale, at which time they will be deducted over a period of 15 years.

The Upside?

You can choose to deduct the first $5,000 in your first year of business for startup costs and another $5,000 for organizational costs. Expenses such as legal fees, corporate filing, DBA, and related expenses fall under this designation, but only if your total startup costs are $50,000 or less. If your expenses were over $55,000 you lose the right to any deduction at all.

Make sure you save all receipts for purchases. The laws change so it’s in your best interest to be aware. Check with your tax professional, who will be aware of the latest IRS tax laws. He or she will advise as to whether your startup expenses qualify for deduction.

Request your free consultation today by calling Paradigm Tax Consulting at 925-240-2886. As a thank you gift for scheduling your consultation, we’ll provide a free book, The Great Tax Escape.

 

Reducing Taxes Through Real Estate Investment

Real estate investment is one of the most effective methods of building wealth, but it only works when you can keep your tax liability under control. Fortunately, owning property gives you a variety of strategies for reducing your tax bill. The Amazon Best Selling book, The Great Tax Escape, includes tips and tricks from expert Certified Tax Coaches, so you can enjoy greater profits from your real estate portfolio.

Three Reasons to Invest in Real Estate Now

Real estate always has its ups and downs, but the last two decades have been more of a roller coaster than usual. Real estate prices rose to dizzying heights just after the turn of the century, but a few years later they plunged. Plenty of property owners were trapped in a situation where they were underwater on investment property, and many of these individuals left the market altogether. The first reason for investing now: Prices have normalized, so it is easier to identify true real estate bargains – and there is far less competition when you make an offer.

Millennials are waiting much longer to purchase a home as compared to previous generations, which means rental properties are in high demand. The second reason for investing now: Quality rental units can fetch premium prices.

Finally, real estate generally appreciates in value, and along the way you can collect income from rental payments. This is a reliable method of building wealth over time. The third reason for investing now: The earlier you enter the market, the more time your property has to appreciate.

Tax Advantages for Property Investors

There are nuances to the amount and type of taxes you pay on rental income, and the specific tax advantages you are eligible for depend on specific features of the property. These are a few of the highlights from The Great Tax Escape:

Your Certified Tax Coach can assist with determining whether you would benefit more from active rental income or passive rental income. Since losses from passive income cannot be used to offset other income, some taxpayers find there is a significant potential for savings by transitioning to active income.

As the value of your property increases, you build real estate equity. It can be tempting to cash some of that out for reinvestment or personal expenditures. When and how you pull equity out of the property, as well as the way you choose to utilize those funds, will determine whether you are responsible for capital gains taxes.

Keeping your real estate holdings in excellent condition is a requirement if you want to get top dollar from tenants. Therefore, the money you put into the property for repairs and maintenance can often be deducted from your taxable income. However, you can only claim these deductions if you have been meticulous about your record-keeping. Keep receipts, notes, and even photographs of the work you do on the property, so that you can save on taxes when the time comes to file your returns.

Real estate investment is one of the most common methods of building wealth, because it has been proven effective again and again. Don’t miss out on your opportunity to increase your assets and decrease your taxes. Be sure to check back here for new information on investing.

Request your free consultation today by calling Paradigm Tax Consulting at 925-240-2886. As a thank you gift for scheduling your consultation, we’ll provide a free book, The Great Tax Escape.

Are you concerned about being stuck with large capital gain in 2018? What if there was a way to avoid it this year? How about for the next 10 years?

If you’re facing beefy tax payments because of capital gains, a new tax break may be worth exploring. The program is part of the Tax Cuts and Jobs Act. It’s called the Opportunity Zone Tax Incentive, and along with saving you money, it’s true purpose is to promote investors to push money into low-income areas to increase their value.

Where Are These Opportunity Zones Located?

An Opportunity Zone is a community nominated by the state and certified by the Treasury Department as qualifying for this special program. Approximately 8,700 Opportunity Zones qualify nationwide. All 50 states have certified zones that qualify, as do Washington DC and US territories.

How Does The Program Work?

Taxpayers who wish to take advantage of this program because they are facing large capital gain after the sale or exchange of appreciated property have a limited amount of time in which to take action. They have 180 days from the date of the sale or exchange to invest into a Qualified Opportunity Zone Fund. The fund is a vehicle organized as a corporation or a partnership for the purpose of investing in qualified opportunity zone property.

What happens to the return of principal? Taxpayers may reinvest it along with recognized capital gain. Only the portion attributable to the capital gain will be eligible for the tax exemption on further appreciation of the Opportunity Zone Investment.

Is the Opportunity Zone Fund Similar to Other Investments?

Just as in other investments, the value of an Opportunity Zone Fund investment may increase or decrease over the holding period. The investor may pay income on this investment. Keeping in mind that the purpose of the program is to improve designated low-income areas, the fund is expected to continue investing in the improvement of the property.

What About Cash Flow?

Once the property improvements are complete, the property may be leased or sold to third parties. At this time, cash flow may occur.

Are There Any Risks?

Investing in The Opportunity Zone Tax Incentive may or may not have risks associated. It’s new, and the IRS and Treasury Department are still gathering information on how the fund will work over time. Because of this, the level of risk is difficult to assess. However certain potential risks have been identified.

Among other things, risks may include market loss, liquidity risk, and business risk. Before you make any plans, note that investment in the new tax incentive may or may not be appropriate in your case. It’s best to consult with a tax professional to determine it it’s a fit for you.

Request your free consultation today by calling Paradigm Tax Consulting at 925-240-2886. As a thank you gift for scheduling your consultation, we’ll provide a free book, The Great Tax Escape.

Uncovering the Secrets of Cost Segregation

Even the most savvy investors and tax experts often avoid the topic of cost segregation. It’s complicated, and a careful reading of tax code doesn’t do much to clear things up. Most IRS-approved applications of cost segregation were developed through individual rulings, rather than written into tax regulations, making it a challenge to get a complete listing of the requirements. However, with a little help from your Certified Tax Coach, you can master this method of depreciation and bring your total tax liability down. They share their secrets in the Amazon Best Selling book, The Great Tax Escape.

The Basics of Cost Segregation

If you don’t know much about cost segregation, you aren’t alone. It is a tax strategy that most real estate investors pass up altogether – but you don’t have to be one of them. At its most basic, cost segregation is another way to look at asset depreciation. As you probably already know, you can depreciate the value of improvements on your property over time. For example, non-residential buildings depreciate over 39 years – their estimated useful life. Residential buildings depreciate over 27.5 years. Of course, the longer the period of depreciation, the less impact this deduction has on your current tax liability.

Cost segregation separates each element of your property, so that you can depreciate certain components over a shorter period. For example, personal property and land improvements can be depreciated over periods that range from five to fifteen years, which has a substantial impact on your tax bill.

Getting Started with Cost Segregation

It is a common misperception that the IRS frowns upon the practice of cost segregation. In fact, there is no indication that applying this method of depreciation has any downside from an IRS perspective, and the IRS has stated on multiple occasions that cost segregation is the correct way to depreciate real estate assets. The only caveat is that the methodology you use to determine when assets should be depreciated must meet strict standards. To ensure clarity, the agency published a comprehensive guide to approved cost segregation study practices. This guide is available on the IRS website under IRS Cost Segregation Audit Techniques Guide.

You can simplify the process of classifying assets for cost segregation by hiring a professional who specializes in cost segregation studies. These individuals use approved methodology to inventory your assets and separate personal versus real property for depreciation purposes. If you plan new construction, bring your cost segregation specialist on-board while plans are being drawn up, as an evaluation of the property before infrastructure is in place can yield valuable information for your future tax filings. If you haven’t practiced cost segregation in the past, it’s not too late. There is a lengthy lookback period, which means you could be eligible for significant savings for previous years.

Speak with Paradigm Tax Consulting, located in Brentwood, CA. As a Certified Tax Coach, we help you understand the potential benefits you may realize through cost segregation, and learn more about the practice in our new release, The Great Tax Escape. This volume offers in-depth information on eligibility requirements for taking advantage of cost segregation benefits, as well as details on how this method can save you money on your taxes. You can purchase your copy today on Amazon or visit our consultation form to learn how you can get a free copy.

Quick Tips for Tax Savings: Physician Edition

Doctors offer critical services to the community through prevention and treatment of health issues. However, getting the necessary education and experience can be challenging – both physically and financially. In an effort to make life a bit easier for physicians, lawmakers have put together a variety of programs to reduce tax liability for doctors. Maximizing these opportunities in combination with other tax-reduction strategies can dramatically increase the rewards of working as a healthcare provider. The Amazon Best Selling book, The Great Tax Escape, includes in-depth information on taking advantage of these tax savings techniques. Learn how to get a free copy of The Great Tax Escape here.

Small Changes Add Up to Big Savings

It may not be possible to implement all available tax savings strategies at once, but making small changes in managing your practice quickly adds up. Over time, continue to add layers of savings by implementing additional strategies. Before long, you will see your tax bill go down, even when your income is going up. These are just a few of the tips you will learn more about in The Great Tax Escape.

The Case for Specialized Financial Professionals

Free and low-cost budgeting and financial planning tools are great for those with basic financial situations. However, your position as a practicing physician is too complex for these platforms. Enlist a team of professionals with specific experience in tax issues that affect health care providers. Not only will they help you save your money more effectively – they will also assist you in planning major purchases to minimize tax expenses. Long-term, you are likely to realize a significant return on this investment.

Common Deductions You Probably Aren’t Maximizing

Though you are already aware of many deductions available to you, it is likely that you are not yet getting the maximum tax savings you are entitled to. For example, continuing education expenses, depreciation of your medical equipment, and student loan interest are frequently underreported on physicians’ tax returns. Your Certified Tax Coach can guide you through the nuances of these deductions, as well as the specific opportunities available to medical professionals.

The Benefits of Better Record-Keeping

Whether you work for yourself or you are employed by a larger healthcare organization, you are always moving at a rapid pace. For many physicians, that means letting the little things slide. While you always meticulously update your patients’ records, you are probably less careful about recording your expenses. Over the course of a year, these small charges add up, and you could be missing out on significant tax savings for want of a few receipts. Make financial record-keeping a priority, and you will notice a difference in your year-end tax bill.

Be Ready for Retirement

Paying off your student loans often takes precedence over saving for retirement – especially when you are just starting out in your career. However, contributing to your retirement accounts now has across-the-board benefits for your current and future financial state. The funds you deposit are given special tax-advantaged status, and when you contribute regularly over a long period of time, you are better able to ride out the ups and downs of the market.

Request your free consultation today by calling Paradigm Tax Consulting at 925-240-2886. As a thank you gift for scheduling your consultation, we’ll provide a free book, The Great Tax Escape.