Any tips on lowering TAXES?

[thinks]

Does anyone have good tips on lowering taxes? Thought we could bounce ideas off of one another and I could learn or research more from what's shared. Looking forward to any discussions.:)

We're new homeowners so wondering about that.

[thinks]

For example, I had read somewhere a while back for homeowners for every other year (I believe) in Dec. you pay your Jan. mtg in Dec. to get tax savings (more) for the tax year. Any comments?

Does anyone do, for instance, a home side business to reduce taxes and care to add your two cents?

[Rolo]

thinks wrote:
For example, I had read somewhere a while back for homeowners for every other year (I believe) in Dec. you pay your Jan. mtg in Dec. to get tax savings (more) for the tax year. Any comments?

That is a good idea, I never thought of that: Pay your mortgage Dec. 31 instead of Jan 1. Similarly, I hold off collecting December's business income until January for the same reason. I also buy business stuff in Dec if I think I will buy it within the next 3 or 4 months.



thinks wrote:
Does anyone do, for instance, a home side business to reduce taxes and care to add your two cents?


Oh yes! A sideline businnes will open the door to many tax benefits. For the first two years, I probably saved as much money in taxes as I made in business income. A quick read that covers a lot of it: 422 Tax Deductions.

What I get out of it:


SEP IRA, treated like a traditional IRA, can contribute up to 20% net business income
Office expenses, office expenses, office expenses! My substantial amount of computer equipment andsoftware, books, certification tests, cell phone, the office fridge, all the caffeinated beverages in the office fridge
Home Office deductions, based on square-footage. I can deduct 10% of all home-related expenses (utility bills, insurance, lawn care, repairs, etc.)
39 cents/mile if you drive for work, an entire vehicle if you have one strictly for business.
Business vacations...er, I mean trips
If you have a hobby that you can turn into a sideline business, do it! Another quick read on how to get started, by the same author, is Small-Time Operator.

[Frizz B.]

A lot depends on the money you make in each year. If you know that you will be getting a new job in the next year and your income will be going up significantly, you could decide not to pay your december house payment till Jan and then your next Jan payment will be made in Dec. Then you will have more right-offs for the next year you do your taxes when you have more income to be taxed. Uncle Sam doesn't really care which way you go, because in the long run, it all breaks out even. If you are deciding to pay next Jan mortgage in Dec. Then the next year you will not have that option. You will only have 11 months to right off taxes unless you do the same thing again and then you will have 12, but you will have to do it every year to keep it that way.You make your decisions on this years income and what tax break you are looking for compared to next years income, whether you need a bigger tax break or not.

Frizz B.

[tsptalk]

thinks wrote:
Does anyone do, for instance, a home side business to reduce taxes and care to add your two cents?

That is a real good idea. Charles Givens' book Wealth Without Risk has a lot of useful ideas on how to take advantage of that, tax-wise.

[azanon]

Careful though with those home businesses. The IRS is looking at those really closely and if you dont establish a legitimate business (subject to a host of IRS rules), you wont qualify for these types of deductions. Make sure and visit the IRS's website and download their home business scam warning sheet before dabbling in this to make sure you do it right.

[pyriel]

thinks wrote:
For example, I had read somewhere a while back for homeowners for every other year (I believe) in Dec. you pay your Jan. mtg in Dec. to get tax savings (more) for the tax year. Any comments?

Does anyone do, for instance, a home side business to reduce taxes and care to add your two cents?

By paying the monthly January mortgage in December, one will be able to get tax savings. However, it will not work for the following year since you only have 11 monthly mortgage left. If one decide to repeat the process, the individual will still have only 12 mortgage payment within one year.

Side business? What about real estate?

[grandma]

...lumping as many tax deducts into one year as can helps, naturally. As mentioned above, if you see this year's income is going to be considerably higher, then make more tax deductable payments this calendar year; including January's mortgage. There are also medical type things: look ahead & get as many as can into one paticular year. . It stillis effective only if you can manageby only having these expenses every other year.Don't forget what extramight be allowed into the IRA. I recall a close friend who wanted to deduct a home business, but one of the requirements for his wife's particular job was a direct entrance that didn't affect the living quarters. and, Importantly, don't miss out on your tithes & offerings ......

As Rolo & Tom said : read, read, read -http://smileys.smileycentral.com/cat/3/3_3_5v.gif (http://www.smileycentral.com/?partner=ZSzeb001_ZNxmk145YYUS)http://smileys.smileycentral.com/cat/12/12_1_120.gif (http://www.smileycentral.com/?partner=ZSzeb001_ZNxmk145YYUS)http://smileys.smileycentral.com/cat/3/3_3_103.gif (http://www.smileycentral.com/?partner=ZSzeb001_ZNxmk145YYUS)

[michelleunit]

i would also like to know about home business deductionsfor real estate rental...i use my computer, fax machine, scanner and office at the house. not to mention office supplies, and hard copy files. or is it even worth the effort for one rental?

michelleunit

[grandma]

michelleunit, at tax time I turn in an approximate amt of time I have spent related to the duplex. Supplies, etc, I split. First question I ask would I have purchased this if I didn't have the rental. Then of course, any traveling time, car expense gets listed to. Since I don't do my own taxes, I just give my Accountant the mileages, the amount of money, the guestimated amount of time. He does the rest. This year I have a lot of repairs & maintenance receipts to turn in too, the mileage includes going after the suppplies, shopping for the `right' carpet, etc.

I realize your quesiton is really about utilizing Home Business Deductions. I don't use a `home business' as such, d/t the percentage of time I use for `the business' does not qualify me as a home business, nor ismy `office' open to those who I do business with. (..with whom I do business !!) :P I must qualify this to say, that my accountant didn't tell me that - I `just figured' that would be it.When relative moved oo the bank building , she tried to gether Loan Arranger business classified as `home', but they didn't have a definate entrance into the room they would be using , which was simply their joint office/computers room; there were other restrictions, too.

Someof the other members will reply soon w/information more appropriate to what you are asking !!! :^

[michelleunit]

thanks for bringing some clarity to my question. i think i'll not mess with it as i only have one rental property (at present). what i haven't ever done was logged time. i've logged mileage for trips. we've had to go looking for different items at different times, and never thought to log that time. how does one figure a dollar amount to that? thanks for your info.:)

michelleunit

[grandma]

michelleunit wrote:
...and never thought to log that time. how does one figure a dollar amount to that? thanks for your info.:)
michelleunit

I figure my time is worth at least what I get paid at work. But I really just leave that up to my accountant .........??



Pyiel ??

[pyriel]

grandma wrote:
Pyiel ??
Yes Grandma?

[Rolo]

Yeah, Py, you're the real estate mogul here...what tips do you have?

Michelle: the book I mentioned, 422 Tax Deductions answers your question directly.

[michelleunit]

Rolo-thanks-i'll check it out...i must've skimmed the earlier post and missed it!

michelleunit

[grandma]

pyriel wrote:
grandma wrote:
Pyiel ??
Yes Grandma?

And: Rolo wrote: "Yeah, Py, you're the real estate mogul here...what tips do you have?"
Yes, exactly, that is what I meant -

[pyriel]

real estate mogul hereLOL.... You guys are hilarious.... Will give my input next week...

[pyriel]

Here is my take on taking deduction during tax time... Take as many as you can. People have this notion that the IRS is almighty and they will come over to your home and take everything just because you reported some deduction in your tax return. As any government entity, they are understaffed and overworked. Additionally, the burden of proof is on them to tell you that you are not allowed to deduct a certain item in you return.

Go ahead and deduct your computer, desk, toners, papers,etc. etc. The worst that can happen is for the IRS to tell you that you can't deduct them. That is all they can do. Yes, you might have to return some of the tax return if you overpaid your taxes but so what. By the time they get to you, a year had passed (and you can even delay that longer) and you already put that money to good use. Michelleunit, I am going to concentrate on you since I have some info on your rental unit.

Your rental income is $9600 per year. Your job is to make that dissapear. This is what I love about running a business, you spend your money first and whatever is left is your taxable income. If you end up spending more, they will give you a credit back. Don't you just love that? You can't do that with earned income where Uncle Sam always get paid first. With other deductions such as interest paid, insurance property tax, mgmt fee, depreciation you are coming up to about $9527. This means that your taxable income for the year is $63.

Hey, why stop there. What about your repair, the tax preparer's fee, your computer, desk, paper, filing cabinet, printer, tax program, tax preparer's course? They can all be deducted as well. Some will say that you can't deduct a computer and printer for your business. I say that is hogwash. You should be able to deduct them even if you only have one rental unit. I guess you really will not know if they are deductible or not unless you actually try deducting them. The IRS will tell you later if you can't deduct them and even if they do you can fight them for it.

Ok, lets say I was wrong and the IRS came back to you and said you can't deduct the 1k computer and $300 printer. Does this mean that you have to pay back $1300 to the IRS. NO! In schedule E, you will just deduct the $1300 from your total deductions. So if they take your repair, tax preparer's fee, paper, filing cabinet, tax program, tax preparer's course, etc... You will still have a negative cash flow in paper. You will then take that new amount and bring it to part 17 of 1040 (longversion) and it will change your AGI. Remember, the rental unit is just one aspect of the whole tax return 1040. Your AGI should have been lowered considerably if you max out from your TSP.

Besides, with computer and printer, you really can't deduct $1300. You have to break them down to 5 years due to depreciation. So the most you can deduct per year is $260.

Bottom line: Deduct as much as you want. Let the IRS come back to you and tell you that you can't deduct them. If they don't say anything, then you just have to keep your file for five years and that should be the end of it...

[pyriel]

Michelleunit,

I forgot where is your rental located. Why don't you take a vacation and swing by your property. Once you are there, take a rental car. They are also tax deductible under Schedule E. Of course if your vacation takes you to Jamaica and your property is in Florida, the cost of the airfare roundtrip from Dallas to Florida and backis the only thing you can't deduct. The good thing about this is you can do it every year....

p

[pyriel]

For the military folks... Do you have to go to PT 5x or 3x a week? What about when the 1SG tells you that you have to report somewhere else for formation. What about when your superior tells you that it is mandatory to attend a function. The IRS allows you to deduct your mileage for those trips that you making. How do you do it? Just keep a log book in your car. Write down, date and time, starting and ending miles of your trip, and reason for the trip. You'll be suprised on how much mileage you accumulate within one year. With the gas rising, I think we can all use whatever we can to lower our taxes...

[pyriel]

I sent this email traffic to our AGR force. I think it is relevant here as well. Just to give you a little bit of background with our tax return program, the government is broke and it is taking them 2-3 years to pay back the people's tax return. Here is something I wrote for them to help them get their money a little faster. If you are receiving a hefty tax return. You might want to read this...

ALCON,

This is a follow up email from the previous one I sent entitled: 2006 TSP Are you Ready? I received alot of good responses from my first email that I thought it is worth writing a followup on this issue. Please read on.

I am looking for Service Members (SM) that will give me $200, $300, $400, or maybe even $500 per month. I do not promise to give it back after 12 months or maybe not even 36-48 months. Better yet, I will just promise to pay the SM when I have money to spare.

You are probably thinking that Pyriel is losing it. There is no way any SM will give him any money and follow the terms that he mentioned above. However, is the scenario presented above really far fetched? NO WAY!!! Uncle GOVGUAM is doing it to our SM year after year and there is no end in sight (at least at this time). In fact, we still have SM waiting to be paid for their 2001/02 tax refund.

Tax refund is a refund coming from the government because SM paid too much taxes for the year. On my first email, I thought you how to find out how much taxes SM is supposed to pay according to their tax bracket. I also showed how to lower down the SMs income so that they have less taxable income, thus having to pay less tax. In my last email, I believe that a SGT with ten years experience will be overpaying about $2250 if he follows my advice. The result is that he will receive a tax refund of $2250. Now, I said that SM can wait a year to get their tax refund or they can get them now. To get them now, this is what they need to do.

Change the exemption in their W4.

How do you calculate how much exemption should you put in? Please follow the website below.
<http://www.irs.gov/individuals/article/0,,id=96196,00.html>

$2250 divided 12 equals $187.50 per month. Now, I know for a fact that I can do alot with $187.50 additional income a month. SM members need to play around with this so that they will not overpay or underpay their taxes. If you are within a $100.00 of paying or receiving refund every year, this means that SM is paying the right amount of taxes.

I feel bad whenever I hear SM tell me that they received $4K or $7K on their tax refund. They are so happy because they now have a lump sum of money that they can spend. This tells me that the SM is not aware that he is overpaying his taxes and Uncle Sam is using them to earn interest for the Federal Reserve.

Many SM I spoke with do not want to put high amount of exemption in their W4. They are putting 1 or 2 exemption eventhough year after year, they are receiving ridiculous refund. Some SM have told me that putting in more exemption in W4 is actually cheating Uncle Sam. HOGWASH! The IRS will not allow you to do that. When SM do their income taxes, whether it is 1040, 1040A or 1040EZ, it will even out in the end. Let me explain.

When SM puts in 10 exemption in their W4, taxes being taken from them is less. At the end of the year, taxes taken from the SM on a monthly basis will be added. If it is below the SM's tax bracket (look at tax bracket in Publication 17), SM has to pay the difference.

When SM puts in 1 exemption in their W4, taxes being taken from them is more. At the end of the year, taxes taken from the SM on a monthly basis will be added. If it is above the SM's tax bracket (look at tax bracket in Publication 17), SM will receive a refund.

W4 is utilized so that SM may identify how much tax they have to pay, not to report how many dependents they have. You report your dependent in your 1040, 1040A or1040EZ. In the early days, dependents were utilized to find out how much tax SM has to pay. However, with the new inception of retirement system in the 50s through present, W4 became synonimous on how to pay your taxes accordingly. Uncle Sam also do not want you to overpay or to underpay your taxes. This is the reason why they make you decide on how many exemption you put in your W4. Finance can't input the number for you. In fact, Finance (through MyPay) allows you to change your exemption in your W4 anytime you want. It is up to you.

If you do not agree with what I am saying here, please print this email and show it to an accountant for verification. I can only lead you the way but you have to walk through it. You can continue to overpay Uncle Sam or Uncle GOVGUAM and wait for your money to come back to you 3 years down the road or you can get your money now and start using it TODAY. If you are uncertain on how to figure out how much taxes you have to pay and how many exemption you need for your W4, please talk the Finance folks or talk to me. Thanks...

[pyriel]

Here is another I sent wrote to the Guam Army National Guard...

ALCON,
This information is for those who are interested in knowing more about TSP. If you feel that this message does not pertain to you, I apologize in advance. For those who wants to know more can email me back and I promise to send you more info about TSP on a later date.
Many people really don't understand how beneficial TSP is for our service members. For those who recently just started with the Guard, especially as an AGR, this is a great opportunity to build wealth which will help you when you are about to retire. Below is a question that I cut and pasted from the TSP website:
47) What is the percentage of contribution that I can elect?
The maximum contribution allowed from basic pay for pay periods beginning in:
2004 . . . . . 9%
2005 . . . . .10%
2006 and thereafter...TSP contributions limits eliminated
If you elect to contribute to basic pay, you may contribute from 1% to 100% of any incentive pay, special pay or bonus pay that you receive.
Internal Revenue Code section 402(g) and section 415(c) may limit your annual contributions. See the Summary of the Thrift Savings Plan for the Uniformed Services for more information about these statutory limitations.

Now, soldier member look at this and say "Well, I am now maxing my contribution to my TSP. I am good to go." However, many of them really don't grasp the idea of how significant year 2006 is for TSP contributor. Statement above says that "2006 and thereafter... TSP contributions limits eliminated" However, they put a little sign at the bottom telling service members to look at IRS 402(g) and section 415 (c). Now, what does this really mean?
Here is the shorter version.
<http://www.tsp.gov/uniserv/features/chapter16.html#sub1> <<http://www.tsp.gov/uniserv/features/chapter16.html>>

In essence, it is telling us that by year 2006, the limit for service members to contribute is $15,000.00. If service member is 50 years or older, he/she may contribute $5,000.00 more for a total of $20,000.00.

Some service members will say that there is no way, anyone can save $15,000.00 or $20,000.00 into TSP. In some essence, they are right. Service members will not be able to maximize contribution because they have alot of debts, which is really what it will boils down to. Many service members will have valid reasons and some will also have other reasons, But for those who have reasons because of the following: Nice cars, credit cards, nice vacations, nice gifts, nice parties, eating out alot, personal loans, etc. etc... they can still do something about it to get ready for year 2006. And the good thing about this is that the IRS will help the service member.

Planning for 2006 is a major task for many TSP members who are not very familiarized with the system. Although, we will be allowed to put in 15K (or 20K for 50 years or older), not too many people will be able to afford them if they are not ready NOW. 15K (if they want to max on contribution) divided 12 pay period is about $1,250.00 a month.
I went to publication 17 and looked at the tax table. An E5 with 10 years of experience will have an annual base pay of $28,068.00. For this example, I will assume that he is single. Earning $28,068.00 base pay for the year will require him to pay $3,861.00 of taxes. This is usually taken out on a monthly basis on the service members' LES. If this person contributes the maximum to TSP which is $15,000.00, his taxable income will go down to $13,068.00. This means that when he receives his W2 at the end of the year, it looks like he only earned $13,068.00. Service member will then be taxed only $1,611.00. If service members overpaid, he/she will receive a tax return or $2,250.00 ($3,861.00 - $1,611.00). Imagine gaining a 15% return on your $15,000.00 maximum contribution from Uncle Sam ($2,250.00 divided by $15,000.00). You will never get that from any bank or establishments out there. In actuality, your contribution out of your pocket is only $12,750.00. But in TSP, you have $15,000.00. If anyone would like to know more about this, please let me know and I will help them decipher the IRS codes for the TSP within their tax bracket. If anyone would like to verify this with any accountant, please print this email and give it to them.
Some service members will say that waiting until the end of the year to get the tax return is too hard, especially if a big chunk of their money is already going to TSP. There is good news. Service members do not have to wait until the end of the year to receive the $2,250.00. They can actually get them NOW. If anyone would like to know more about this, please let me know.
I offer my assistance for those who are willing to learn. Reading the tax code is one of my hobby. Service members that I spoken with seems to be afraid of the IRS. The truth is they have to play with the same rule that is being given to us: PUBLICATION 17.

[pyriel]

Here is another one that involves social security. The attachments will show you the difference between taking the 80% vs. 100%. Never take the 100%...

ALCON,
I was going to write something about itemized deduction but a Service Member (SM) pointed a question to me whether it is more feasible for him to start drawing from his social security when he is 62 years old rather than when he turns 67 years old. He thinks that 62 years old is better but he is not sure why.
I informed him that our category as service members benefits more in drawing social security when we turn 62 years of age. SM who draws their social security will only receive 80% of the full benefit vs. 100% benefits if they wait until they turn 67 years of age.

Attached is an excel worksheet showing you why you should draw your social security when you turn 62 years old. Since I am not good in math, the dollar figure I used to formulate this worksheet is based on an SM that will be receiving $1000.00 if he/she decides to wait until 67 years of age to start withdrawing from social security. Yours is most likely going to be different.

As you can see, SM who starts withdrawing at age 62 years old will always be ahead from another SM who waited to draw social security at the age of 67. The first five years allows them to accumulate $48000.00 right off the bat. In fact, SM who waits until 67 years old to start drawing their social security will not be able to catch up with the SM who started drawing their social security at 62 years of age until THEY ARE 86 YEARS OLD. A total of 24 years. Good Lord!!!!

I don't know about you but I don't think I will be doing as much when I am 86 years old vs. when I am 62 years old. I would rather get my money while I am younger and able so that I can enjoy them. Social security along with TSP and Roth IRA and our retirement should be more than enough to get us through in our old days.

So for you NEW AGRs, please open up your eyes and start thinking of the future. It is unfortunate that our old timers, ooopppsss, I mean seasoned AGRs were provided these opportunities towards the end of their career. Although it will still work for them, these programs are really meant for a long haul. The farther you are from retiring, the better your chances of success. I am sure that our seasoned AGRs would have jumped on these opportunities if these programs were presented to them earlier.