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.
Are you getting subsidized health insurance through the Federal health insurance?
If you are getting subsidized health insurance through the Federal health insurance exchange then you likely can receive more subsidy due to a recent law change. In the past, you could receive NO subsidy if your income exceeded 400% of the Federal Poverty Level. Now, there is no bright-line phaseout and you will always receive a subsidy to keep you from paying more than 8.5% of your income towards health insurance. If you need any clarification on how this impacts your tax return then please call us.
Don’t Overpay Tax on Early Retirement Distributions
If you have to get your hands on IRA or 401K money before age 59 ½, then usually you have to pay a 10% penalty. You might be able to avoid this penalty if your withdrawal is to pay for large medical bills, college expenses, the birth or adoption of a child, a first-time home purchase (withdrawal limited to $10K), or is related to a disability. Furthermore, some of these exceptions only apply to IRA withdrawals. For example, if you are purchasing your first home, a $10K withdrawal from your 401K to fund it will be subject to a 10% penalty, but a $10K withdrawal from an IRA won’t be. Solution: Roll $10K of funds from your 401K to your IRA, and then withdraw the funds from the IRA to help with your house down payment.
Save $1,000 in 2022 or $1,500 in 2023 if you Have a Child in College or Private K-12 School
If you have a child in college or private K-12 school, then take advantage of the 20% Indiana College Choice 529 credit on your Indiana tax return. The credit is 20% of your annual contribution with a max annual credit of $1K in 2022 and $1.5K in 2023. You don’t need to pay funds directly from the 529 to the school. If you would rather pay for school expenses from your personal account, then contribute funds to the 529 to get the credit and then transfer those funds back to your personal account as a reimbursement. To take advantage of this, the funds need to be deposited into the 529 by 12/31 of the year for which you want the credit.
For Those over 72 who Donate to Charity
If you are over age 72 then you are forced to withdrawal money from your Traditional IRA each year and include that amount in your taxable income. Most retirees don’t itemize since their itemized deductions (state and local taxes, mortgage interest, and donations) don’t exceed the $28,700 standard deduction – thus their donations don’t save them any tax. The solution: If you donate to charity directly from your IRA, then you don’t have to include that donated amount as income on your tax return…so in a round-about way, you get to deduct that donation (i.e., your taxable income doesn’t include the amount you donated to charity directly from your IRA). Even though the required minimum distribution age is 72, you can start using this strategy when you reach age 70.5.
If you have a high-deductible health insurance plan that covers your family and you have a child on that health plan who is under age 26 and not a dependent (thus, the child is likely age 22-25), then you can contribute the family maximum to your own HSA and since that non-dependent child (likely aged 22-25) is also on a family high-deductible health insurance plan, that child can contribute $7,300 to their own HSA account.
Obamacare Family Glitch Fixed
When the ACA/Obamacare was drafted, approximately 6M families who didn’t have access to affordable health insurance through work weren’t allowed access to healthcare exchange subsidies. If a spouse was offered affordable self-only health insurance through their job, then the family was barred from getting exchange subsidies even though that employer didn’t offer affordable family health insurance coverage. This has been fixed and will allow these families the chance to get health insurance subsidies when open enrollment begins on healthcare.gov on November 1st. We have encountered many families who were hurt by this “glitch” and this is welcome news to them.
Indiana’s Automatic Taxpayer Refund
On August 5, Governor Eric Holcomb signed legislation authorizing a new $200 automatic taxpayer refund for qualifying individuals, $400 for joint filers.
If you are still waiting on your original $125 refund from Indiana via check payment. You will receive that amount along with the additional $200.
If you received the initial $125 via direct deposit, you will receive the $200 ($400 joint filers) via direct deposit again. Indiana’s goal is to send these out mid to late August.
You are eligible for the $200 refund as long as your tax return for 2020 was filed by 1/3/22 or earlier & your 2021 tax return was filed by 4/18/22 with a direct deposit account listed.
Keep an eye on your bank accounts and your mailbox! For further questions, please reach out to us!
Indiana is Giving Me $125
Am I eligible?
You will receive an Automatic Taxpayer Refund if you filed an Indiana resident tax return for the 2020 tax year with postmark date of Jan. 3, 2022, or earlier. An Indiana resident tax return means you filed your state taxes using one of the following:
- Form IT-40, Indiana Full-Year Resident Individual Income Tax Return.
- Form IT-40PNR, Indiana Part-Year or Full-Year Nonresident Individual Income Tax Return, if you were married and filed jointly AND you were an Indiana resident for the entire year (2020).
- Form SC-40, Unified Tax Credit for the Elderly AND you resided in Indiana for more than six months in 2020.
How will I receive my Automatic Taxpayer Refund?
How you receive your Automatic Taxpayer Refund depends on information contained in your 2021 Indiana Individual Income Tax return. Your Automatic Taxpayer Refund is separate from other payments or refunds you may receive from the state.
You should receive your Automatic Taxpayer Refund by direct deposit if:
- You filed an Indiana resident tax return for 2020 before Jan. 3, 2022; and
- Filed a 2021 Indiana resident tax return by April 18, 2022; and
- Listed direct deposit checking or savings account information for your 2021 Indiana Income Tax refund.
One-time direct deposits of $125 will arrive in bank accounts beginning in May and continue through mid-summer.
Currently, the Auditor of State plans to mail Automatic Taxpayer Refund checks in late summer. * You will receive a check from the Auditor of State if:
- You do not meet the requirements for direct deposit (see above); or
- You filed for an extension of time to pay on your 2021 Indiana resident tax return; or
- You included directed deposit information for an account associated with refund advance loans or similar arrangements; or
- Your Automatic Taxpayer Refund could not be otherwise deposited directly into your bank account.
*This timeline is dependent on supply-chain issues affecting the paper industry and is subject to change.
Whenever possible, one refund of $250 will be issued by direct deposit or check for married couples filing jointly when both spouses are eligible for the Automatic Taxpayer Refund.
You should allow until Sept. 1 to receive your Automatic Taxpayer Refund.