Schaaf CPA Group LLC

Cost segregation is a tax-deferred strategy that allows real estate investors to accelerate depreciation and achieve immediate tax savings through the classification of appliances, carpets, and all other interior and exterior components on the property. Cost segregation could be advantageous after acquiring a new property, as an alternative to a 1031 exchange, or in cases of partial asset dispositions.

While there have been proposals and suggestions regarding matching 529 plan distributions with expenses in the same tax year or by March 31 of the following year, no official ruling has been made. IRS publications and tax forms do not provide explicit guidance on reimbursement withdrawal deadlines. As a result, we recommend aiming to reimburse yourself for qualified education expenses within the same year or before March 31 of the following year. If you cannot meet these deadlines, it remains uncertain whether reimbursement is still possible. We advise you to consult us to navigate this matter and make informed decisions based on your specific circumstances.

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).

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.