OT: Tax Deductions

[BlameTheDogs]

Any last minute tax deductions that I should look at for this year? Tips?
-Married, no kids
-Own a couple rental properties
-Work from home, not self employed

 

[patdog]

Pay property taxes before year end.
Take care of any repairs, etc before year end.
Ask renters not to pay January rent until Jan. 1.
Make charitable contributions prior to year end. If you have stock that has appreciated, give the stock. No capital gain tax & you get charitable contribution for market value.

 

[johnson86-1]

Any last minute tax deductions that I should look at for this year? Tips?
-Married, no kids
-Own a couple rental properties
-Work from home, not self employed

Where are you compared to the $12,000 standard deduction? The biggest bang for your buck is making your deductions lumpy. If you aren't hitting your SALT cap, then you can basically pay your property taxes every other year for tax purposes (i.e., pay January1 and December 30 of 2020, then January 1, and December 30 of 2020) in most jurisdictions. So let's say you pay $5k in state income taxes and have $2,500 property taxes, and give about $2,500 a year. If you lump your property taxes and giving into alternate years (so assuming you didn't pay 2019 property taxes until 2020, that would mean paying your property tax before end of year, and you've given $2,500 so far this year, then you can go ahead and also "pre-give" for 2021 in December, then you basically get a $15k itemized deduction for 2020, and then a $12k standard deduction for 2021, rather than two $12k standard deductions. Not a ton of movement, but can net you an extra $1,100 tax savings every other year just by keeping enough cash on hand to pay your property taxes and do your giving early.

Just be glad you're single (for at least tax purposes). The $10k SALT deduction being the same for single filers or married filing jointly is a pretty stiff tax penalty on marriage. $2,400 a year not the biggest deal in the world, but annoying b/c it's so unreasonable.

ETA: If you have access to a 401k, be sure and max it our or put as much as possible into it. It's just about as good as it gets for non-business owners.

If you can max out the 401k and still have money left over, then do a roth or a non-deductible contribution to an IRA (so you can roll it into a roth later). No current deduction but basically just as good as the 401k deduction assuming you stay in the same tax bracket in retirement. And once you get it into a roth, that money is much easier to access than 401k money without penalty, so you might want to do that before even maxing out your 401k.

 

[horshack.sixpack]

I think you can give me up to $15k

 

[maroonmadman]

I have a few stocks that are under performing. They have actually lost value since I acquired them. Can I sell them before the first of the year and claim that deprecation as a loss on my taxes?

 

[patdog]

Yes. But you can only deduct up to $3,000 of capital losses per year. If you have more than $3,000 in losses you can either sell other stocks with gains and use the losses to offset them or carry the excess loss forward. Remember, you can’t buy that stock for a time (I think 60 days) or you won’t be able to take the loss.

 

[Apoplectic_Objurgator]

Any reasons to believe we’ll be able to take additions Covid business losses in 20 or 21?

 

[patdog]

I don't think you'll be able to take additional losses on top of any you may have, which you've always been able to take anyway. The major COVID issue for businesses is the PPP loans. If the loans are forgiven, the loan forgiveness (which would normally be taxable) isn't taxable. However, the expenses you use to apply to the PPP loan to get it forgiven currently aren't deductible (which is basically a back door way of making the loan forgiveness taxable). Almost everyone expects to see that deductibility restored, but as of now, it hasn't been.

 

[GloryDawg]

Where are you compared to the $12,000 standard deduction? The biggest bang for your buck is making your deductions lumpy. If you aren't hitting your SALT cap, then you can basically pay your property taxes every other year for tax purposes (i.e., pay January1 and December 30 of 2020, then January 1, and December 30 of 2020) in most jurisdictions. So let's say you pay $5k in state income taxes and have $2,500 property taxes, and give about $2,500 a year. If you lump your property taxes and giving into alternate years (so assuming you didn't pay 2019 property taxes until 2020, that would mean paying your property tax before end of year, and you've given $2,500 so far this year, then you can go ahead and also "pre-give" for 2021 in December, then you basically get a $15k itemized deduction for 2020, and then a $12k standard deduction for 2021, rather than two $12k standard deductions. Not a ton of movement, but can net you an extra $1,100 tax savings every other year just by keeping enough cash on hand to pay your property taxes and do your giving early.

Just be glad you're single (for at least tax purposes). The $10k SALT deduction being the same for single filers or married filing jointly is a pretty stiff tax penalty on marriage. $2,400 a year not the biggest deal in the world, but annoying b/c it's so unreasonable.

ETA: If you have access to a 401k, be sure and max it our or put as much as possible into it. It's just about as good as it gets for non-business owners.

If you can max out the 401k and still have money left over, then do a roth or a non-deductible contribution to an IRA (so you can roll it into a roth later). No current deduction but basically just as good as the 401k deduction assuming you stay in the same tax bracket in retirement. And once you get it into a roth, that money is much easier to access than 401k money without penalty, so you might want to do that before even maxing out your 401k.

1. His income could be high to be able to contribute to a ROTH.
2. Even though he is a active participant in company sponsored retirement plan he could possibly still make a full or partial tax deductible IRA contribution. That would be based on his Adjusted Gross Income.

 

[johnson86-1]

1. His income could be high to be able to contribute to a ROTH.

There is no income limit on making a nondeductible contribution to an IRA and then rolling it over. THe "back-door" roth people refer to even though they shouldn't because it basically establishes a pretty good argument for applying the step transaction doctrine to treat it as an impermissible contribution.

2. Even though he is a active participant in company sponsored retirement plan he could possibly still make a full or partial tax deductible IRA contribution. That would be based on his Adjusted Gross Income.

That's true, but if you can qualify for a tax deductible IRA and you still have money available to contribute to an IRA, I would think that you're in a low enough tax bracket that you should go ahead and do the Roth, as there is a good chance your marginal tax bracket is going to be higher in retirement than currently.

 

[GloryDawg]

There is no income limit on making a nondeductible contribution to an IRA and then rolling it over. THe "back-door" roth people refer to even though they shouldn't because it basically establishes a pretty good argument for applying the step transaction doctrine to treat it as an impermissible contribution.

That's true, but if you can qualify for a tax deductible IRA and you still have money available to contribute to an IRA, I would think that you're in a low enough tax bracket that you should go ahead and do the Roth, as there is a good chance your marginal tax bracket is going to be higher in retirement than currently.

On a Roth IRA your income can affect how much you can contribute. You never get a tax deduction for it. However once it's been in force for five years and you turn 59.5, die or first time home buyer(10k max) it is income tax and penalty free. That's what make it so great. Free money!

On a Traditional IRA you only need earned income to contribute. You may or may not be able to take a tax deduction for your contribution but as long as you have earned income and under age 72 you can make a contribution. If you take a tax deduction or not depends on other company sponsored retirement plans and your adjusted gross income. If you are not a active participant of a company sponsored retirement plan what you contribute is tax deductible. If you are a active participant then your adjusted gross income comes into play.