#59: Tax Planning vs. Tax Preparation

In this episode, Chris & John cover the beneficial sphere of tax advantages that come with homeownership. This conversation is a must-listen for current and prospective homeowners aiming to understand the financial and tax implications of owning a primary residence. The duo unpacks several key benefits, providing listeners with actionable tax tips that could lead to significant savings.

Throughout the episode, Chris and John highlight the immediate tax deductions available through mortgage interest and property taxes, emphasizing the importance of itemizing deductions for maximizing returns. They also explore lesser-known incentives, such as energy-efficient home improvement credits and the significant capital gains exclusion for primary residences, revealing strategies that can support a homeowner’s financial growth. For homeowners pondering the value of renting out their property, the Augusta rule offers an attractive tax loophole, allowing income from rental properties to be tax-free under certain conditions. The episode serves as a concise guide for navigating the intersection of homeownership and tax planning, providing enriching content for financially savvy listeners.

Key Takeaways:

• Homeownership offers tax deductions on mortgage interest, property taxes, and mortgage points if you itemize your deductions.
• Energy-efficient home improvements can lead to federal tax credits, potentially adding value to the home while offering tax savings.
• The Section 121 exclusion allows homeowners to exclude up to $250,000 (single filer) or $500,000 (married filing jointly) of capital gains from the sale of a primary residence.
• The Augusta rule enables homeowners to rent out their property for up to 14 days per year and excludes the rental income from taxes.
• Tax benefits are designed to encourage homeownership and contribute to community stability and economic growth.

Notable Quotes:

• "Homeownership does create property tax revenue. It creates more sense of community. So there's a lot of value to a community where you have a high percentage of homeownership." - Chris Picciurro
• "If you own a primary residence and you sell it, most likely you're going to get a full or partial exclusion from any capital gain." - Chris Picciurro
• "If you're renting a property, the rent you pay is a personal expense. There's no deduction for that. That's just the way it is. But if you own a property and you itemize your tax deductions, your mortgage interest, your property taxes, and any mortgage points paid are deductible." - Chris Picciurro
• "Imagine someone lives in Boise, Idaho. They get elected to the House of Representatives. They go live in Washington, DC, buy a house there, live there for two years, do their term, they don't get reelected. They sell their home in Washington. Guess what? Conveniently, they won't pay a capital gain on that because they lived there for those two years." - Chris Picciurro
• "Rent your house out for up to 14 days and absolutely exclude all of that rental income from tax." - Chris Picciurro

Resources:

• Join the Teaching Tax Law community for personalized tax advice and updates: teachingtaxlow.com
• Connect with our guest Chris Picciurro and the podcast team through the Defeating Taxes private Facebook group: defeatingtaxes.com

Episode Sponsor:
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In the pursuit of legally reducing lifetime tax payments, this episode unveils the strategic advantages of understanding step-up in basis and how it applies to various inherited assets. Chris succinctly breaks down the essence of cost basis and its implications for capital gains tax. His expertise shines through as he presents everyday scenarios, articulating a clear picture of the benefits and intricacies involved. 

Key Takeaways:

• A 'step-up in basis' significantly reduces capital gains tax on inherited assets by adjusting the asset's cost basis to its market value at the time of inheritance.
• Inherited assets are automatically treated as long-term capital gains, beneficial for lower tax rates, regardless of how long the asset was held prior to sale.
• Beneficiaries should not rely on old brokerage statements for cost basis and must ensure their inherited assets' cost basis is updated correctly.
• In community property states, surviving spouses may benefit from a "double step up in basis," further reducing potential tax liabilities.
• Consulting with a tax professional is crucial when dealing with inherited property to ensure proper tax treatment and maximization of available deductions.

Notable Quotes:

• "It's much better to inherit assets than to receive them as a gift."
• "Any inherited assets are automatically considered long-term capital gains, which we know are the lower rates."
• "Make sure that you, what we call, review your depreciation schedules or realistically have your tax professional review your depreciation schedules because you might not know what the heck you're looking at."
• "A lot of the things we talk about here on the podcast is really based around tax planning and strategy."

Resources:

• Defeating Taxes Facebook Group: Search "Defeating Taxes" on Facebook to find and join the private group discussed in the episode.

Dive into the full episode for an in-depth exploration of 'step up in basis' and gain valuable insights into how it can benefit your tax strategy. Stay tuned for more episodes from "Teaching Tax Flow" to continue enhancing your tax knowledge and uncover constructive financial tips.

Episode Sponsor: The Mortgage Shop

In this episode of the Teaching Tax Flow podcast, the hosts, John Tripolsky and Chris Picciurro, welcome Lisa McCarthy to demystify the often-interconnected worlds of bookkeeping, accounting, and tax preparation. Kicking off the conversation, Lisa vividly shares her accidental yet fortuitous dive into bookkeeping, sprouting from her innate love for numbers and a chance meeting with QuickBooks software.

Bookkeeping, Lisa emphasizes, is not merely about maintaining records but about crafting a robust, foundationally-sound financial narrative for any business. The nuances discussed unravel why entrepreneurs should contemplate outsourcing this critical function when it begins to overshadow their primary business objectives. The episode pivots on providing actionable insights, advocating for a deeper comprehension of the various technological stacks that surround modern bookkeeping - a domain where QuickBooks reigns supreme yet interlinks with a diversity of other applications.

Key Takeaways:

• Bookkeeping is a specialized field: It's essential to separate bookkeeping from accounting and tax preparation, as each serves distinct purposes for a business.
• Outsource when appropriate: Business owners should consider hiring professional bookkeepers when the task becomes a burden or affects their growth focus.
• Technology plays a significant role: Today's bookkeeping involves understanding various tech stacks, with QuickBooks online being a dominant tool in this sphere.
• Reconciling is crucial: The balance sheet is the paramount financial statement to ensure accuracy within a business's bookkeeping practices.
• Growth indicates change: Transitioning bookkeeping tasks to experts is not a sign of failure but an indicator of a business's advancement and the need for specialized attention.

Notable Quotes:

• "Bookkeeping doesn't have to be a burden—it should be about sculpting a dependable, foundational financial tale for any business." – Lisa McCarthy
• "As a business owner, the moment bookkeeping starts feeling like a chore, that's your cue to consider outsourcing it." – Lisa McCarthy
• "The balance sheet follows your business from the moment you begin until you decide to close your doors." – Lisa McCarthy

Episode Sponsor:
Strategic Associates, LLC
Roger Roundy
www.linkedin.com/in/roger-roundy-86887b23

Episode Summary:

In this episode of the Teaching Tax Flow podcast, hosts Chris Picciurro and John Tripolsky jump into the complexities of K-1 forms with a blend of expertise and humor. Designed to capture the interest of taxpayers and professionals alike, the episode breaks down the purpose, importance, and timing of K-1 forms, which are crucial for individuals involved in partnerships, S corporations, and certain types of trusts and estates. The conversation transitions smoothly from explaining what K-1 forms are to offering actionable advice for those who receive or issue them.

Chris provides an insightful overview of how K-1 forms act as the W-2 equivalent for entities that don't pay federal income tax themselves but rather flow through profits and losses to their members. He emphasizes the significance of timely actions, the potential penalties for missing deadlines, and the benefits of working with a tax professional. The hosts also explore scenarios such as extending personal tax returns when K-1s are delayed and the implications of entering into business partnerships without an understanding of these forms, emphasizing that preparedness and communication are critical in handling K-1s effectively.

Key Takeaways:

• K-1 forms are essential documents for individuals involved with flow-through entities like partnerships, S corporations, and certain trusts and estates, detailing their share of income, deductions, or credits.
• They should be treated with the same importance as a W-2, and recipients may need to extend their tax filings if K-1s are delayed.
• There can be significant penalties for entities that fail to provide K-1 forms by the March 15th deadline, or a later deadline if an extension is filed.
• Effective communication and having tax matters organized upfront are vital for both issuers and receivers of K-1 forms.
• While K-1 forms add complexity to tax filing, they can also present tax planning opportunities through income shifting and other strategies.

Notable Quotes:

• "K-1 is the W-2 equivalent for people that are involved in what we call transparent or flow-through entities." - Chris Picciurro
• "You're better off delaying things and getting things done the right way instead of doing things, taking shortcuts." - Chris Picciurro

Episode Sponsor: The Mortgage Shop

In this episode of the Teaching Tax Flow Podcast, we are joined by Nate Hamil of Integrated Investment Group to discuss the pivotal question: "When do I need life insurance?" 

This episode serves as an essential listening point for anyone looking to understand the intricacies of choosing the right life insurance policy tailored to their unique life circumstances. It opens up a world of financial planning and the intricacies of life insurance policies with a focus on personal responsibility and future-proofing one's financial legacy.

The conversation delves into various types of life insurance policies, including term life and whole life insurance, highlighting their respective benefits, flexibilities, and use cases. They further explore the concept of infinite banking within the sphere of whole life insurance, providing insights that resonate with real estate investors and those seeking alternate financing solutions. We wrap up with a vital exploration of life insurance in the business context, walking listeners through the mechanics of buy-sell agreements driven by life insurance policies, and emphasizing the need for strategic planning in both personal and business domains.

Key Takeaways:

• Life insurance should be considered when an individual first feels they have emotional and financial responsibilities towards others.
• There are several types of life insurance policies to consider, including term life, which is like renting insurance, and whole life or permanent insurance, which can be structured to provide cash value growth.
• Infinite banking is a strategy using whole life insurance where excess premiums can grow and be used for financing future purchases or loans.
• For business owners, life insurance can be utilized to draft buy-sell agreements ensuring business continuity and preventing unwanted partnerships in the event of a death.
• It is essential to review life insurance policies annually and to consult with non-captive insurance advisors who can offer multiple carrier options for the best-suited policy.

Notable Quotes:

• "A life insurance policy is the best last love letter you can ever leave someone you care about."
• "Speaking to a professional about this is very important, but having an understanding of it before you go into that meeting so that you best understand how to have conversations is also important."

Resources:

• Integrated Investment Group (IIG) - www.IntegratedIG.com
• Nate''s direct email for inquiries - nhamil@integratedig.com
• Nate 's calendar for scheduling consultations - calendly.com/nhamil-iig

Fusing the excitement of gambling with the precision of tax planning, hosts Chris Piccuirro and John Tripolsky navigate the complexities of one's obligations to the IRS following those auspicious wins or painfully remembered losses. Both Piccuirro and Tripolsky pepper their discussion with humor and relatable anecdotes that easily resonate with their audience. This episode especially appeals to listeners eyeing the upcoming Super Bowl, the biggest betting event of the year, and those curious about the tax impact of their potential gambling earnings.

Driven by the rapid increase in online and app-based wagering, the duo sheds light on the critical aspects of gambling wins and losses and the importance of honest reporting. 

They unpack the intricacies of federal and state tax regulations, emphasizing the significance of obtaining W-2G forms when required and understanding how winnings - both cash and non-cash - are taxed differently. Additionally, they emphasize the crucial nature of record-keeping to ensure compliance and protect against potential audits.

Key Takeaways:

• Gambling income, be it from legal or illegal activities, must be reported to the IRS by U.S. residents, regardless of where it was earned globally.
• Losses can be deducted up to the amount of winnings, but only if you itemize your deductions on your federal tax return.
• Accurate record-keeping of gambling activities is vital for claiming losses and proving the case in an IRS audit.
• Non-cash wins are also taxable based on their fair market value and must be reported accordingly.
• It's not only about the federal tax; state and local tax implications also come into play, and understanding these nuances is critical for accurate tax reporting.

Notable Quotes:

• "IRS considers all gambling winnings as taxable...regardless of if they come from legal or illegal gambling activities."
• "You can deduct your gambling losses up to the amount of gambling wins if you itemize your deduction on the federal return."
• "Proper record keeping is essential when you're dealing with gambling income and deductions."
• "You could actually be paying taxes on gambling winnings, even if you end up with an overall gambling loss for the year."
• "If you win a non-cash prize...such as a car, vacation package, or other goods, the fair market value is considered taxable income and must be reported to the IRS."

Resources:

• Episode #13: Itemized vs. Standard Deduction

Episode Sponsor:
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In this episode, we reconnect with tax expert Andrew Poulos to jump into the anticipated IRS updates for the year 2024. As we traverse through recent transformations within the IRS, Andrew sheds light on what lies ahead for taxpayers and practitioners. This episode is a treasure trove of information for those looking to stay ahead of the curve in tax planning and compliance.

Listeners will gain a comprehensive understanding of the IRS’s increased budget and its implications for enforcement, notices, and taxpayer interaction. Andrew highlights key areas the IRS is targeting, such as electric vehicle credits, worker classification, and the Employee Retention Credit (ERC). The discussion also ventures into the strategic side of tax representation, emphasizing the importance of building a professional rapport with the IRS for improved outcomes in tax resolution cases.

Key Takeaways:

• The IRS is ramping up enforcement by increasing budgets and personnel, leading to a more aggressive approach to tax collection.
• Priority areas for IRS enforcement include the Employee Retention Credit (ERC), electric vehicle (EV) credits, and the distinction between employees and independent contractors.
• Strategies are key in tax representation, and a good rapport with IRS agents can significantly influence the resolution process.
• The IRS is working towards better technology integration to streamline processes like amended returns, yet there are still challenges to overcome.
• The IRS engages with tax professionals to bridge the understanding gap and improve the overall tax compliance and resolution landscape.

Notable Quotes:

• “Most people will be proactive, but a lot will just kind of lay low either because they don’t have the money, they have other problems going on in life.” - Andrew Poulos
• “As they beef up, you can expect more notices to be fired out. They’ll be a bit more aggressive. We’re trying to collect.” - Andrew Poulos
• “With strategy… you got to discuss the options and the risks with the client. Let them make the decision and basically execute the strategy when you can.” - Andrew Poulos

Episode Sponsor:
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In this engaging episode of Teaching Tax Flow, hosts Chris Picciurro and John Tripolsky unpack the intricacies of Roth IRA conversions. They jump into the core concepts, outlining the benefits and distinctions between traditional IRAs and Roth accounts, accentuating strategies tailored to tax minimization and financial growth. The introduction sets the stage for a deep dive into the fiscal implications of Roth conversions, with a particular focus on tax-deferred growth and eventual tax-free distributions.

The hosts navigated through the advantages of Roth conversions in the current low-tax climate, underscored as the "golden era" of taxes by Chris, thereby making it a prime opportunity for maximizing tax-free income in retirement. They elaborated on diverse scenarios and prerequisites that qualify someone for Roth conversions, including income levels, filing status, and five-year conversion rules. Furthermore, they touched upon the savvy financial maneuvering known as "backdoor Roth conversions" for those with higher incomes, demystifying the Roth conversion process and its profound impact on financial planning.

Key Takeaways:

• Roth IRA conversions allow pre-tax retirement funds to grow tax-free, with future distributions not subject to income tax, given certain conditions.
• Current low tax rates present an opportune time for considering Roth conversions, referred to as the "golden era of tax."
• Each Roth conversion is subject to its own five-year rule starting from January 1st of the conversion year for tax-free withdrawal eligibility.
• Income limitations do not apply to Roth conversions, unlike Roth contributions, enabling high-income earners to partake through backdoor conversions.
• Roth conversions should be tactically timed, considering marginal tax rates, to prevent phasing out of essential tax credits and benefits.

Notable Quotes:

• "We are in the golden era of tax, in my opinion." - Chris Picciurro
• "Cash flow and tax flow are not the same thing." - Chris Picciurro

Episode Sponsor: The Mortgage Shop

In this episode, titled "Understanding The Corporate Transparency Act," the Teaching Tax Flow podcast hosts, Chris Picciurro and John Tripolsky, along with expert guest Jeff Hampton, dive into the intricacies of the newly enacted Corporate Transparency Act (CTA). This conversation is a must-listen for businesses and investors keen on remaining compliant with the latest federal laws that aim to curb money laundering through increased transparency.

The podcast provides a rich discussion on the implications of the CTA on small businesses and investors, focusing particularly on entities formed before and after January 1, 2024. The dialogue lays out what the law expects, emphasizing the importance of identifying beneficial owners and the type of entities affected. With ongoing updates from the federal government, the episode serves as an essential guide for staying abreast of compliance requirements without panic.

Key Takeaways:

• The Corporate Transparency Act aims to combat money laundering by monitoring small companies with less than $5 million in gross receipts or 20 or fewer employees.
• Entities formed before January 1, 2024, have until January 1, 2025, to comply with the CTA, while new entities formed after that date have a 90-day compliance window.
• "Beneficial ownership" is defined as individuals having at least 25% ownership or exercising substantial control over a reporting company.
• Trusts, especially revocable and irrevocable ones, are currently not considered reporting companies under the CTA unless they meet specific business purposes.
• It's essential to work with professional advisors to stay current with CTA regulations and ensure long-term compliance without making knee-jerk reactions to changes.

Notable Quotes:

• "This is just another one of those things we just got to get in line with. If you're going to be an investor and you're going to have LLCs or run a business." - Jeff Hampton
• "One of the things to do is to be in touch with your advisors who know the direction of this and are working with investors every day to make sure this is in place." - Jeff Hampton
• "Don't just go rush into this right now. Let's let the dust settle just a little bit." - Jeff Hampton
• "It's the last thing we need, but whether we like it or not, we've got more compliance." - Jeff Hampton

Resources:

www.teachingtaxflow.com/cta

Episode Sponsor:
Strategic Associates, LLC
Roger Roundy
www.linkedin.com/in/roger-roundy-86887b23

In this episode of the Teaching Tax Flow podcast, hosts Chris Picciurro and John Tripolsky discuss tax prep readiness. They emphasize the importance of tax planning throughout the year, rather than just during tax season. They also highlight the need for organization and proper documentation to ensure the best possible outcome on your tax return. Chris and John provide practical tips for collecting and organizing tax documents, as well as choosing the right tax professional. 

They stress the importance of giving all income items to your tax professional and not being afraid to file a tax extension if needed.

Key Takeaways:

• Tax planning should be a year-round process, not just during tax season.
• Organize your tax documents in a separate folder in your email and a physical folder.
• Have a copy of your prior-year tax return handy for reference.
• Give all income items, even if they don't seem important, to your tax professional.
• Don't be afraid to file a tax extension if you need more time to gather information.

Quotes:

• "Your tax return is a verb, not a noun." - Chris Picciurro
• "The best result possible comes from being organized and giving all income items to your tax professional." - Chris Picciurro

Resources:

• Episode #59: Tax Planning vs Tax Preparation
• NOW OFFERING Tax Prep Services!

Episode Sponsor:
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