Why is our real estate expert Diana talking to us about taxes? Even though I’ve spent the last 23 years as a real estate investor and educator, my career began with a degree in accounting and a five-year assignment to the tax department of a national accounting firm.
One of the sections that I teach in the two day real estate class is dedicated to tax strategies related to real estate. Although no investing decisions should be made based strictly on the tax consequences, it is a very important component. So one of the first things I would suggest you do is make sure you have a professional tax advisor that understands all of the different elements involved in your investing and personal finances. We are really excited that we here at Online Trading now have a resource for the students when it comes to taxes, OTA Tax Services.
Here are few tips as we approach the end of 2012.
PLEASE MAKE SURE YOU SEEK THE ADVICE OF YOUR TAX ADVISOR REGARDING ANY OF THESE SUGGESTIONS.
If you’re looking for additional deductions and expenses related to your business, here are few that you might consider making before the end of 2012.
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 either donate cash or other items. Under the new Pension Protection Act, 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 2013. 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 2013 begins could help offset income and lower your taxes.
Prepay Property Taxes: Prepay (some or all) of 2013 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 7.5% of your adjusted gross income (AGI).
Max out your retirement savings: Here are the Standard Deductions Amounts for 2012:
- Single – $5,950
- Head of Household – $8,700
- Married Filing Joint – $11,900
- Married Filing Separately – $5,950
- Qualifying Widow/Widower – 11,900
- Dependent – $950-$5,950
And you have up to April 15, 2013 to make the contribution for 2012.
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 is a great way of lowering your tax liability; you may also want to consider the income side of your taxes. Here are a couple of suggestions.
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 2012. 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 weren’t prepared for, simply because of a lack of knowledge and planning.
Once again, please make sure that you contact your tax advisor to evaluate how these suggestions can best serve you.
Have a joyful Holiday Season.