This is the second installment of Tax Deductions & You: What You Need to Know which can also be downloaded from our free eBook library.

Any loans that fall under the nondeductible category need to be reviewed along with your cash or equity availability. If possible, they also need to be re-characterized to a deductible form of interest.

An example of this would be having availability on a home equity loan (balance after transfer must be below $100,000) and paying off an auto loan or credit card. This will increase cash flow two fold:

1. The interest rate charged on a home equity loan will, in most cases, be lower than the rate charged on an auto loan or a credit card balance.
2. The interest that is paid will be deductible on your personal tax return, saving you money each year when filing your return.

When considering this method of converting non-deductible interest into deductible home equity interest, you should consider the length of time you plan on staying in your current home.

If the home will be sold within the next 12 to 24 months, this may not be in your best interest. This is because you will be forgoing the down payment on your next home purchase. Job changes and other unforeseen circumstances happen without warning, something to consider before pulling the trigger on extending the home equity loan.

A second example of equity availability would be if you are the owner of a business with the availability to extend a shareholder loan.

To discuss these strategies in more detail, please come see us at Makara & Associates, a Naples CPA firm. We would be happy to review your situation. We offer many accounting services to meet your needs including; cash flow planning, benefits of a controllership, social security planning, and so much more. If you have more questions or would like more information contact us online, call (239) 384-9688 in Naples, (239) 768-5008 in Fort Myers, or connect with Makara & Associates on Facebook.

- Mark

…you can create a nice tax break.

Your tax planning will definitely benefit from doing this!

A simple transaction can be a win-win for both you and your parents or in-laws.

Assuming your parent’s home is paid off or the interest deduction added to other itemized deductions is less than the standard deduction, a tax savings can be created.

This will also put needed cash into the hands of your parents or in-laws without them having to refinance or dip into a home equity loan.

You must pay fair market value for the home when purchased, however courts have allowed landlords to charge up to 20% below fair market rent to relatives (L.A. Bindseil, TC Memo 1983-411).

Any losses generated by the rental property will fall under the passive activity rules, which will need to be reviewed prior to making the transaction.

Besides writing off expense that would not normally be a deduction (i.e. operating expenses for the property), once your parents or in-laws are no longer living in the home you will have options;

• Sell it
• Rent it to another tenant
• Move in.

Moving in can create a bonus benefit; if you make the home your principle residence for 2 or more years you will be able to shelter another $250,000 or $500,000 worth of capital gains income though the IRC Section 121 deduction.

If you have any questions, comments, or concerns about tax planning, or think I can help you in any other ways, contact me, or give me a call at (239) 384-9688.

- Mark

This information is based on facts, assumptions and representations as stated and authorities that are subject to change. We will not update this information for subsequent legislative or administrative changes of future judicial interpretations.

LEGAL NOTICE AND DISCLAIMER: The information within this blog is for informational and educational purposes only and is not tax advice and should not be used as such. The facts of each individual situation can have significantly different outcomes when applying tax law. The hiring of a CPA is an important decision not to be based solely on advertisements.

the 2009′s highest income tax rate was 35%, so:

If your estate was larger than the 2009 exemption amount of $3.5 million you may have been able to save 10% in estate taxes by converting to a Roth IRA.

This is a complex issue and should be reviewed with your legal and tax professional(s) but should not be over-looked when making the Roth conversion calculation decision.

As with any tax law change the financial news publications do a good job of giving the basic’s, however tax law changes always require digging deep into the law change to bring out the additional tax savings and long-term cash flow opportunities.

The Roth conversion is no different; this law change could be the biggest in your life-time.

The options are limitless and require you and your tax professional to stand back and review them all.

Some could affect your family’s finances 70, 80 or even 100 years for a Roth conversion completed in 2010, depending on your age.

Think of the tax-free compounding affect on any assets for that length of time, not to mention the other benefits mentioned above.

If you have any questions, comments or concerns about Roth IRA’s, or think I can help you in any other ways, contact me, or give me a call at (239) 384-9688.

- Mark

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This information is based on facts, assumptions and representations as stated and authorities that are subject to change.  We will not update this information for subsequent legislative or administrative changes of future judicial interpretations.

LEGAL NOTICE AND DISCLAIMER:  The information within this post is for informational and educational purposes only and is not tax advice and should not be used as such.  The facts of each individual situation can have significantly different outcomes when applying tax law.  The hiring of a CPA is an important decision not to be based solely on advertisements.

…review your 401(k) plan(s), because some will allow distributions while you are still employed.

You can convert a distribution directly from a 401(k) into a Roth IRA, be sure not to overlook this option.

If you have any questions, comments or concerns about Roth IRA’s, or think I can help you in any other ways, contact me, or give me a call at (239) 384-9688.

- Mark

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This information is based on facts, assumptions and representations as stated and authorities that are subject to change.  We will not update this information for subsequent legislative or administrative changes of future judicial interpretations.

LEGAL NOTICE AND DISCLAIMER:  The information within this post is for informational and educational purposes only and is not tax advice and should not be used as such.  The facts of each individual situation can have significantly different outcomes when applying tax law.  The hiring of a CPA is an important decision not to be based solely on advertisements.

the IRS views them as one pool of assets for tax purposes.

If you elect to do a Roth conversion you must review, with your tax professional, your pre-tax dollars being held in your traditional IRA(s), SEP and SIMPLE plan(s) to reduce your tax liability.

Each conversion will have different outcomes, but ultimately your conversions tax liability will depend on your 8606 (tax form number to report conversions) ratio.

By increasing the percentage of after-tax dollars could lessen your tax liability.

If you have any questions, comments or concerns about Roth IRA’s, or think I can help you in any other ways, contact me, or give me a call at (239) 384-9688.

- Mark

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This information is based on facts, assumptions and representations as stated and authorities that are subject to change.  We will not update this information for subsequent legislative or administrative changes of future judicial interpretations.

LEGAL NOTICE AND DISCLAIMER:  The information within this post is for informational and educational purposes only and is not tax advice and should not be used as such.  The facts of each individual situation can have significantly different outcomes when applying tax law.  The hiring of a CPA is an important decision not to be based solely on advertisements.

Creating “Roth assets” today, by conversion or yearly contributions, will provide you options in retirement.

In retirement you will be able to manage your taxable income yearly by your options of receiving taxable or non-taxable income from retirement assets.

Keep in mind – this could mean the difference between a 15% tax rate and a 28% tax rate in retirement when extra cash will come in handy!

If you have any questions, comments or concerns about Roth IRA’s, or think I can help you in any other ways, contact me, or give me a call at (239) 384-9688.

- Mark

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This information is based on facts, assumptions and representations as stated and authorities that are subject to change.  We will not update this information for subsequent legislative or administrative changes of future judicial interpretations.

LEGAL NOTICE AND DISCLAIMER:  The information within this post is for informational and educational purposes only and is not tax advice and should not be used as such.  The facts of each individual situation can have significantly different outcomes when applying tax law.  The hiring of a CPA is an important decision not to be based solely on advertisements.

You are not required to convert your traditional IRA(s), SEP(s) and SIMPLE(s) into one Roth IRA.

If your assets are of size that will allow you to open multiple Roth accounts, use the different accounts for assets allocation, and then, as mentioned in my previous posts – review each account and re-characterize as necessary.

Creating more options for you today, will make any conversion a win today and into the future.

If you have any questions, comments or concerns about Roth IRA’s, or think I can help you in any other ways, contact me, or give me a call at (239) 384-9688.

- Mark

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This information is based on facts, assumptions and representations as stated and authorities that are subject to change.  We will not update this information for subsequent legislative or administrative changes of future judicial interpretations.

LEGAL NOTICE AND DISCLAIMER:  The information within this post is for informational and educational purposes only and is not tax advice and should not be used as such.  The facts of each individual situation can have significantly different outcomes when applying tax law.  The hiring of a CPA is an important decision not to be based solely on advertisements.

This is part 2 in my 7 part series “7 Things Every Small Business Owner Needs To Know”.  You can download this entire series in my eBook on my web site – www.Makara-Assoc.com.

Tax planning is a year round activity.

Questions such as:

• Is the business making a profit or losing money?
• What is the revenue recognition policy? Is it the correct policy for the industry (there are a number of ways to recognize revenue depending on your industry)?
• What is the capitalization policy of the business? Is it being followed?

I save most new clients my first year’s professional fees, in reduced property taxes, just by reviewing and adjusting the capitalization policy of the company.

Is the business taking advantage of any and all tax elections that can or should be made in a given year (i.e. IRC section 179; expensing of capital assets)?

If your business is established, the last few years have most likely been very difficult and your business has probably incurred losses.

Management of those losses is critical.

I have spent the last 18 months working with business owners to make those losses as large as legally possible to create more income/profit. Yes, create income/profit!

Most small businesses are set-up as a pass-through entity (LLC/partnership or small business corporation aka S-Corp), meaning the owners/partners of the business pays any income tax due for the business.  When the business is generating losses, over and above other income the owners/partners have included on the individual tax returns, a net operating loss (NOL) is generated for that year.

How you treat the NOL is beyond the scope of this eBook, however when an individual has a net operating loss most itemized deductions (Schedule A, on their 1040) and your personal exemptions are lost, not able to be carried forward or back to a subsequent tax year.

Depending on the amount of real estate taxes, mortgage interest and personal exemptions the business owner is allowed, the tax deductions and dollars lost in not being able to offset them against other income can add up quickly.

If you have any questions, please give me a call at (239) 384-9688 or visit my web site at: www.Makara-Assoc.com.

- Mark

This information is based on facts, assumptions and representations as stated and authorities that are subject to change.  We will not update this information for subsequent legislative or administrative changes of future judicial interpretations.

LEGAL NOTICE AND DISCLAIMER:  The information within this eBook is for informational and educational purposes only and is not tax advice and should not be used as such.  The facts of each individual situation can have significantly different outcomes when applying tax law.  The hiring of a CPA is an important decision not to be based solely on advertisements.

Be sure to check out the full article on the Wall Street Journal!

If you have any questions, feel free to contact me, call me at (239) 384-9688, or visit my web site at: www.Makara-Assoc.com.

-Mark

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This information is based on facts, assumptions and representations as stated and authorities that are subject to change. We will not update this information for subsequent legislative or administrative changes of future judicial interpretations.

LEGAL NOTICE AND DISCLAIMER: The information within this blog is for informational and educational purposes only and is not tax advice and should not be used as such. The facts of each individual situation can have significantly different outcomes when applying tax law. The hiring of a CPA is an important decision not to be based solely on advertisements.