I have been a real estate investor and educator since 1993, however my career began with a degree in accounting and a five year assignment to the tax department of a national accounting firm. Therefore, I still keep apprised of the tax laws and how they can work.
No investing decisions should be made based strictly on the tax consequences, though it is an important component. One of the first things I would suggest you do is make sure you have a professional tax adviser that understands all of the different elements involved in your investing and personal finances. If you don’t have one, let me recommend OTA Tax Pro’s.
Here are a few tips as we approach the end of 2013.
PLEASE MAKE SURE YOU SEEK THE ADVICE OF YOUR TAX ADVISER REGARDING THE LIST BELOW:
Cost of education: To maintain or improve skills required in your current business. You can also deduct the cost of education for a new business but not all in the first year.
Charitable contributions: You can donate cash or other items. You will need a written receipt for all charitable donations. Many charities now accept credit cards. This allows you to make and deduct the donation this year but pay for it in 2014. Any donation over $250 must have an acknowledgement letter from the charity.
Sell losing investments: If you own a stock or other investment that’s lost value this year, selling it before 2014 begins could help offset income and lower your taxes.
Prepay property taxes: Prepay (some or all) of 2014 taxes.
Make an extra mortgage payment: The extra interest you pay will be added to this year’s mortgage interest by your lender, increasing your itemized deductions.
Medical expenses: You can take a deduction for medical expenses exceeding 10% (up from the 7.5% of previous years) of your adjusted gross income (AGI). There is a temporary exemption for individuals age 65 and older; the threshold remains at 7.5% until Dec 31, 2016.
Max out your retirement savings: Here are the contribution limits for 2013:
- $5,500 if you are age 49 or younger,
- $6,500 if you are age 50 or older
And you have up to April 15, 2014 to make the contribution for 2013.
Accelerated rental expenses: We talked about pre-paying things like mortgage payments and taxes but you can also prepay things like association dues, insurance premiums and other professional fees related to the property. Don’t forget to also take your mileage deduction for the miles related to your rental.
Boosting your deductions: This is a great way of lowering your tax liability; you may also want to consider the income side of your taxes.
Defer income if possible: If self-employed or a business owner you might elect to invoice customers in January so you don’t have to include that income in 2013. Keep in mind that it may only make sense to defer income if you think you will be in the same or lower tax bracket next year.
I strongly believe that success in business and investing starts with planning. I have witnessed many friends, family and students that have been surprised on April 15th by a tax burden they were not prepared for, simply because of a lack of knowledge and planning.
Once again, please make sure that you contact your tax adviser to evaluate how these suggestions can best serve you.
Have a joyful Holiday Season.