Discussion:Tax Planning Question
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| {{ForumReplyPost|UserID=Cotopop|Date=17 September 2009|Text=Consider a non deductible IRA's for both husband and wife (spousal ) which can be converted to Roth next year . Make sure client does not have a bundle currently sitting in a Traditional IRA becuase of how the calculation works for determinimg portion taxable. Often when the wife is a homemaker you see he husband with a big IRA but wife with nothing. In this case just do the non deductible for the wife . }} | {{ForumReplyPost|UserID=Cotopop|Date=17 September 2009|Text=Consider a non deductible IRA's for both husband and wife (spousal ) which can be converted to Roth next year . Make sure client does not have a bundle currently sitting in a Traditional IRA becuase of how the calculation works for determinimg portion taxable. Often when the wife is a homemaker you see he husband with a big IRA but wife with nothing. In this case just do the non deductible for the wife . }} | ||
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| + | {{ForumReplyPost|UserID=TexCPA|Date=17 September 2009|Text=''Client owns own personal residence and deducts mortgage interest and property tax on Sch A'' | ||
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| + | Increase payments to pay off the mortgage. | ||
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| + | [[User:TexCPA|TexCPA]] 00:03, 17 September 2009 (CDT)}} | ||
Revision as of 05:03, 17 September 2009
Discussion Forum Index --> Advanced Tax Questions --> Tax Planning Question
Discussion Forum Index --> Tax Questions --> Tax Planning Question
| September 16, 2009 | |
| Most of the discussions here on TA deal with tax returns. Today a client called to engage me for "tax planning".
I'm not sure I can help them... I'd like your thoughts. Client is married couple, only one spouse works, w2 income about $150k, 401(k) is max'd. There is income from positive cash flow rental real estate of ~$35k. Client owns own personal residence and deducts mortgage interest and property tax on Sch A. No other significant deductions. Husband wonders what else they can do to save on taxes. Their financial planner (a cfp) suggests they seek tax counsel from a tax specialist. The husband's "idea": to put the residential rental properties in a corporation, owned solely by the wife, who doesn't work. It's not clear to me how this will help. Any ideas on this? What other "tax planning" advice might you offer them? Thanks, The New Tax Guy | |
Southparkcpa (talk|edits) said: | 16 September 2009 |
| Tell them to write YOU a check for $10,000 it should save them some tax.
That is, in essence, what I tell clients like this. 150K, W2..... not much you can do. Counsel them on withholding, how real estate income works etc.... | |
| September 16, 2009 | |
| WHatever you do, DON'T DO THAT!
They should basically rejoice that they're doing well, but I'd be thinking about some shelters along the lines of tax credited kind of stuff, low income housing, and oil and gas, about the only two left. But it apparently bears repeating, NEVER EVER NO NOT EVER PUT REAL ESTATE INTO A CORP. And don't let your friends do it either. | |
| 16 September 2009 | |
| Tell them to buy some Whole Life Insurance, if they are still insurable. | |
| September 16, 2009 | |
| JR1,
I've been told before (and I've intuitively believed) that you shouldn't put real estate into a corporation. I admit, thought that ive never understood WHY. Can you help me understand? Thanks, TNTG | |
| 16 September 2009 | |
| The problem is not in putting real estate in the corporation. The problem is getting it out of the corporation. If the property is distributed to the shareholder, the corporation recognizes a gain, and the shareholder also recognizes a gain. Why create a nightmare? | |
| 16 September 2009 | |
| I think I heard it here, & passed it along to a friend/client - my advising that real estate should be put into a corporation is malpractice! | |
Death&Taxes (talk|edits) said: | 16 September 2009 |
| You don't give us enough information, like their ages? Are there any kids or plans for same? Makes a big difference, but if they are perfect DINKS, tell them to think about buying a place for retirement, or vacation. If the former, renting it out for now might create passive rental losses to offset the passive income. In either case, explain the categories of rental income to them: rental, mixed-used, or personal [14 days or less rent]. | |
| 16 September 2009 | |
| also you don't tell us anything about their Sch B. Perhaps they are not using tax-exempt bonds or low qualified dividend paying stocks correctly. Or VAs or for that matter FAs. If they are spending all of their income left after the 401(k), then they are pretty much stuck paying taxes on it. But if they are putting some of that money away for a rainy day....lots of options to reduce tax. | |
Mikex2e7n5 (talk|edits) said: | 16 September 2009 |
| I am out of my league on this question but would it be advantageous, in this case maybe, that if they DID put the rental real estate into a corp and make the wife the President who actually did some work...then couldn't they take the gross profit, make it the wifes wages, then put that income into a 401(k) in the wifes name?
Again, out of my league here..Reminds me of the quote about keeping your mouth shut and make everyone THINK you are stupid rather than opening your mouth and letting people KNOW you are stupid. | |
| 16 September 2009 | |
| unfortunately, Mike, I think that would be penny wise and pound cake foolish | |
| 16 September 2009 | |
| which of course reminds me of my favorite Marie Antoinette quote from the French Revolution:
"When everyone else is losing their head, it's important to keep yours." | |
Death&Taxes (talk|edits) said: | 16 September 2009 |
| Mike: JR will offer you a blindfold and last cigarette before he gives the order to shoot.
Seriously, because of the way New Jersey taxes flow through entities, there can be an argument to put rentals into an S Corp if there is another buiness S Corp that flows profits but to do so might mean holding the property until death. I've yet to have the cojones to suggest this. | |
| 16 September 2009 | |
| I think JR would vote to bring back the guillotine for this one.
But hey, that might just be Marie Antoinette who put that thought into my mind. | |
| 16 September 2009 | |
| Well for 35K you can do some but not much. How about this one;
Establish an LLC that will manage the property. LLC Hires spouse and pays reasonable salary (I don’t know like 25K or something). Establish profit sharing plan to match 25% or 401K (15.5K+employer match). Elect S Corp for pass through p&l. Sound like an idea? You do need to do some # crunching to see if this scenario would make sense. Consider, payroll tax-15.2%, workers comp in some states, SUI, retirement plan fees $250-$500, accounting fee $500-$1,000, etc. But if the client is in 30% combined Fed/St tax rate and you eliminate that 35K through salary/retirement plan, that would put extra 10K in his pocket. (Witch of course should be invested and not spent on plasma tvs or mid-winter vacation ;-)), not bad!? | |
| 16 September 2009 | |
| still bad - you put the real estate into a corp, Bm. Off with your head! | |
| 16 September 2009 | |
| my bad - I'll help stitch your head back on. I think I've got a roll of duct tape here in my desk.... | |
| 16 September 2009 | |
| Not sure, you might be too expensive and I rather do it myself. LOL | |
| September 16, 2009 | |
| Uh, you did too! You said, Elect S corp for pass thru...that's the same as putting RE into a corp, you have the same problems later.
Sorry, your head cannot be saved. | |
| 16 September 2009 | |
| what about the duct tape? Can I take it off of his neck and put it back on the roll for future use? I don't want to lose anything valuable. | |
Death&Taxes (talk|edits) said: | 16 September 2009 |
| We are all speculating: as Kevin noted, we know nothing about the people except their income. Kevin mentioned PIGS in another discussion but here, assuming some money is available, the idea should be to find whatever you would call a reverse pig.....generate losses.
If their marriage is solid, why pay double Social Security with ideas like payrolling the wife? Sure you create a pension but you give much of the savings away by paying FICA. | |
| 16 September 2009 | |
| Why is everybody thinking that, gush… First I used double dock tape, so no my head stays, second LLC is just a company that collects rent, write checks, makes phone calls, etc. Come-on don’t you have clients who are in real-estate management, managing several building? Third fine don’t be an S corp be a C corp with 2K in net income. I hope I am clear because I am planning to put some stitches one. | |
| 16 September 2009 | |
| Sounds like some good ol' Low Income Housing is in order, as mentioned above. If you find a really successful project, you can take the credits, shelter your other passive gains with the losses from the new project, and cash flow. I sure as heck wouldn't dump any money into social security (read Ponzi scheme, as Kevin calls it). | |
| 16 September 2009 | |
| D&T, agreed. That was my point, he still need to do # crunching to see if it makes sense, add all the costs of this plan vs. actual tax savings, due diligence, etc. I just gave a general idea to explore, and yes, the doctor is already here to help me. | |
| 17 September 2009 | |
| What ever you do, don't dump your money into Social Security? Hmmmm, if I had a 401(k) lose 53% last year, what makes Social Security look so bad?
What we should do is make another automatic malpractice category of maxing out a 401(k). | |
| 17 September 2009 | |
| Consider a non deductible IRA's for both husband and wife (spousal ) which can be converted to Roth next year . Make sure client does not have a bundle currently sitting in a Traditional IRA becuase of how the calculation works for determinimg portion taxable. Often when the wife is a homemaker you see he husband with a big IRA but wife with nothing. In this case just do the non deductible for the wife . | |
| 17 September 2009 | |
| Client owns own personal residence and deducts mortgage interest and property tax on Sch A
Increase payments to pay off the mortgage. TexCPA 00:03, 17 September 2009 (CDT) | |
