Have a Profitable Business?

If you have a profitable sole-proprietorship or partnership, then you are paying income tax and a 14% FICA tax (a.k.a. Self-Employment tax) on all of your business profit. If you convert that business to an S Corporation, then you will continue to pay income tax on all of the business profit but will pay the 14% FICA tax only on what you pay to yourself as a W-2 wage from your S Corporation (see the next idea for further details).

Do You Think You Can Make Money in Real Estate?

Buy your first property for $50K. When it is worth $80K, trade up to a better property. When that property is $110K, trade up for another property. By the time you die, you will have real estate worth $2M for which you only paid $50K. If you utilize the like-kind exchange rules when transferring between each property, then you can pass away holding the last property and the nearly $2M of taxable gain could potentially vanish upon your death. If you would rather enjoy that appreciation for your own personal use while you are still alive, then you can borrow against the $2M property in retirement and enjoy the use of the borrowed funds without selling the property and being forced to recognize a gain…and, to top it off, the gain could potentially still disappear upon your death.

Want to Start a Retirement Plan for your Employees?

The IRS will give you a tax credit to reimburse you for your retirement plan start-up expenses. You only get the credit if you have non-owner employees. Furthermore, if you automatically enroll your employees in your retirement plan, then you get a credit between $500 and $5,000 each year for the first 3 years of the retirement plan.

Do You Want 0% Capital Gains Tax on Your New Business Venture?

If you invest in a C Corporation that has less than $50M of assets in exchange for an issuance of stock and hold the stock for 5 years before selling it, then you pay no federal tax on up to the first $10M of gains you have. The business cannot be one involving personal services (such as finance, investing, farming, or operating a hotel or restaurant.) Obviously, the ability to use this rule is limited, but we find that it works well for a business involving a new invention or new technology: If you get a patent on a new product, don’t get the patent in your name, but instead form a C Corporation, have the C Corporation obtain the patent and engage in business, and then when the patent gets valuable, sell the stock of the C Corporation. By following these steps, your gain might be tax free.

Want to Buy a New or Used Electric Vehicle? New tax credit rules apply and are generally effective on purchases after 1/1/23:

a. The max credit is $7,500 per vehicle ($3,750 if the vehicle complies with domestic sourcing requirements for critical materials used in batteries plus another $3,750 if the vehicle satisfies domestic content requirements for battery components) – no vehicles currently meet the critical materials test…so the max credit currently is $3,750.
b. The final vehicle assembly always has to occur in the USA.
c. You cannot claim the credit if your personal income is more than $300K if Married Filing Joint ($150K for single-filers).
d. The MSRP cannot be more than $80K for vans, trucks, or SUVs or $55K for any other vehicles.
e. You can get a credit of the lesser of $4K or 30% of the purchase price for your used electric vehicle which costs under $25K and is at least two years old. To get this used vehicle credit, you have to purchase the used vehicle from a dealer and your income has to be less than $150K Married Filing Joint or $75K as a single-filer.
f. The above rules apply if the vehicle is for personal-use. If the vehicle is for business-use, then the rules are more liberal.
g. Before you buy an EV, give us a call so that we can walk you through the rules and opportunities.

Do You Have Losses in Your Crypto Portfolio?

Similar to your investment account, you can sell underperforming crypto or virtual currency to free-up the capital losses to offset your capital gains and up to $3K of ordinary income each year. As of now, crypto and virtual currency transactions are not subject to the Wash Sale Rules, so you can re-purchase the crypto or virtual currency moments after the sale and still get to enjoy the losses on your tax return.

Do You Have Unrealized Losses Sitting in Your Taxable Investment Account?

Put those losses to work to lower your 2022 taxes. You can sell the losers so that the realized loss is free to offset any capital gains you have and up to $3K of ordinary income to the extent you have completely offset your capital gains each year. CAUTION – be sure to avoid the Wash Sale Rules when implementing this strategy. You cannot buy/sell the same or “similar” securities within 30 days of another buy/sell and deduct any resulting losses. For example, if you sell GE (General Electric) shares on 12/15/22 at a loss, you cannot repurchase GE shares before 1/15/23. If you did, then any resulting losses from the 12/15/22 sale would be disallowed.