I got most of my tax preparation done for my 2006 tax return yesterday. Yeah, it was a riot.
I don't think anyone likes to think about tax time, but I for one do my very best each year to minimize my tax burden using all of the deductions allowed to me under current tax law. I don't want to give away more of my income/proceeds than I have to, or want to.
Below is a link regarding the AMT tax trap that faces millions more each year. It has become a serious problem for middle class America. Fixing it will be extremely costly and difficult.
Good article on the Alternative Minimum Tax Debacle
I don't understand the mentality of "I'll just pay my taxes and be done with it". I face this a lot when potential clients decide tax planning is too much effort, or listen to their CPAs who also don't understand the value of planning and tell them it's easier to just pay the piper.
But, it's not my money or my financial future. I can't worry more about it than the one who faces the dilemma. Just remember, in addition to everything else, a large capital gain often triggers the AMT tax and there goes even more of your money you could have protected.
My best advice: Take the time and make the effort to understand your alternatives. Then, if you choose to "just pay the taxes" so be it.
Paula Straub
www.savegainstax.com
760-917-0858
Find out if you are a good candidate to save Capital Gains Tax. Fill out the Qualification Questionnaire and get a fast, personal response.
Thursday, March 08, 2007
Wednesday, February 28, 2007
The Rules - They Keep on Changing
Just when I think things are finally settling down and there won't be any more changes for a while, they change again. It truly is a process of constant evolution.
Don't get me wrong, change is often good, but it goes to show you that you can't rely on the information given to you by someone who is not monitoring these updates on a daily basis.
What was true 4 months ago was not true 3 months ago and not what was true 2 months ago is not true today. And there were about 20 revisions in between.
Today's change involves the way recaptured depreciation is reported when doing an installment sale through a foundation. I have gone back and revised my last post to reflect this change.
The recaptured depreciation on sale of real estate is now due at time of sale (or on the next tax filing). However, the good news is, that the upfront tax deduction has been increased, so a good portion is canceled out between this deduction and the amount forever forgiven by the charitable bargain sale.
Paying less (total) upfront also increases the net amount to you in each payment you receive throughout your contract from the installment sale portion.
It all gets a bit complicated, but is clearly spelled out in the proposals for each individual case.
This change was incorporated in cooperation with the IRS as a final step in keeping with established tax law.
I'll keep you posted. Don't be surprised if over the next month or three the evolution continues to unfold and more changes arise. I won't be. Keeps me on my toes!
Paula Straub
760-917-0858
Fill out a Qualification Questionnaire to see if you are a good candidate to save capital gains tax.
Don't get me wrong, change is often good, but it goes to show you that you can't rely on the information given to you by someone who is not monitoring these updates on a daily basis.
What was true 4 months ago was not true 3 months ago and not what was true 2 months ago is not true today. And there were about 20 revisions in between.
Today's change involves the way recaptured depreciation is reported when doing an installment sale through a foundation. I have gone back and revised my last post to reflect this change.
The recaptured depreciation on sale of real estate is now due at time of sale (or on the next tax filing). However, the good news is, that the upfront tax deduction has been increased, so a good portion is canceled out between this deduction and the amount forever forgiven by the charitable bargain sale.
Paying less (total) upfront also increases the net amount to you in each payment you receive throughout your contract from the installment sale portion.
It all gets a bit complicated, but is clearly spelled out in the proposals for each individual case.
This change was incorporated in cooperation with the IRS as a final step in keeping with established tax law.
I'll keep you posted. Don't be surprised if over the next month or three the evolution continues to unfold and more changes arise. I won't be. Keeps me on my toes!
Paula Straub
760-917-0858
Fill out a Qualification Questionnaire to see if you are a good candidate to save capital gains tax.
Friday, February 23, 2007
Are Taxes Inevitable? Maybe, but They Can Be Minimized (revised entry)
Are taxes really inevitable? Maybe, but with proper planning they can be minimized! By Paula Straub
When selling a highly appreciated asset, capital gains tax is always an issue. If it is property that has been depreciated over time, recaptured depreciation is also a concern. Triggering the AMT is a good bet as well. Most investors have no true concept of the amount of their gain that will go to taxes when they sell outright.
Most actually think 15% is all they will owe, but in reality it is usually closer to 25-45%.
Selling businesses or closing down corporations also trigger more tax than is thought. It matters whether you sell an asset within a business and then have to get the money out of the business and into your personal account (often meaning additional income tax) or if you sell the business as a whole as shares or percentage ownership.
No one disagrees there is a tax problem, but finding out what options are available and best suit your needs is the greatest challenge.
Here are the choices under current tax law. Not all are available to every type of asset sale. There are many rules to follow for each, but below the concepts are explained briefly for the sake of this article.
A 1031 exchange. If you have real estate held for investment, this is a good continuation strategy, because you can exchange your property for another of equal or greater value and defer all of your tax consequences. You can also do a 1031 exchange into a tenant in common property if you no longer wish to deal with the headaches of being a landlord and property manager.
A Charitable Bargain/Installment Sale. Used in combination, this is the most recent offering and perhaps the most beneficial of all of the exit strategy choices. You are basically exchanging your asset (business, real estate, stock portfolio, collection, cash, annuity, etc.) for a series of guaranteed payments over a fixed number of years. You are able to spread out your taxable obligation (the capital gains tax burden) over these years and pay it in small chunks versus one huge lump sum at time of sale. Although the recaptured depreciation (if applicable) is paid in the year of the sale, the amount due is significantly reduced by the charitable deduction and the amount forever forgiven. There are also additional benefits to you, as a public charity makes the sale for you. Among them are:
A large charitable deduction up front that can be used to reduce your taxable income from all sources by 30-50%, depending on the type of asset sold. This can be carried forward for up to 6 years total if not fully used in the first year.
A partial forgiveness of both capital gain and recaptured depreciation (if applicable) forever.
Return of the entire asset (less pledge amount) over the stated contracted period with 5.5% interest as a series of guaranteed payments.
Less and less taxable income each year from the amortization schedule of the payments.
A contribution to charity for a good cause without significant loss of principle as in the other charitable sales.
The time/value of compounding money, since the bulk of your tax burden remains working for you over time.
The asset is partially removed from your estate.
The asset passes to your heirs per your instructions should you pass away before receiving all of your guaranteed payments. They can receive it in trust to minimize their tax burden, or as a lump sum with remaining taxes due at receipt.
A Charitable Remainder Trust (CRT, CRUT, CRAT, etc) or Charitable Gift Annuity.
These methods are well documented and do have their place. Basically, the asset (or major portion of it) is earmarked for a charity at your death and you, the seller, receive an up front tax deduction and the interest the asset is able to generate during the course of your lifetime. Your tax burden is relieved since a charity doesn’t pay taxes, but you may have to pay recaptured depreciation and other taxes from a mortgage payoff at time of sale. This option is usually best suited for those with large estates and charitable intentions. It also can be used in combination with the charitable bargain/installment sale if the intent is to get the biggest up front charitable tax deduction, and with a Dynasty Trust if you need to remove the entire amount from your estate.
A Structured Sale. This strategy is offered by a couple of large insurance companies to spread out the capital gains tax obligation over time. Your buyer assigns the obligation to make installment payments back to you over a fixed number of years at a fixed interest rate to an Assignment company owned in part by the associated insurance carrier. The proceeds are invested in a Single Premium Immediate Fixed annuity which will make the payments back to you over the designated number of years. All recaptured depreciation must be paid up front and no additional tax deductions are offered except the ability to spread out your capital gains tax obligation over time. You are locked in at a fairly low interest rate for the length of the contract. One should always compare the benefits side by side, but this option does impose several major limitations.
A combination of two or more of the above options. It doesn’t have to be all or nothing, and you may choose to keep a portion out and pay taxes at time of sale.
The worst injustice you can do is not educate yourself on the options available to you. You always have the right to pay your tax bill, but doing it from a position of knowledge assures you that you have all the facts and choose what is in your best interest.
Paula Straub
www.savegainstax.com
(760)917-0858
Fill out the Qualification Questionnaire to see if you are a good candidate to Save Capital Gains Tax
When selling a highly appreciated asset, capital gains tax is always an issue. If it is property that has been depreciated over time, recaptured depreciation is also a concern. Triggering the AMT is a good bet as well. Most investors have no true concept of the amount of their gain that will go to taxes when they sell outright.
Most actually think 15% is all they will owe, but in reality it is usually closer to 25-45%.
Selling businesses or closing down corporations also trigger more tax than is thought. It matters whether you sell an asset within a business and then have to get the money out of the business and into your personal account (often meaning additional income tax) or if you sell the business as a whole as shares or percentage ownership.
No one disagrees there is a tax problem, but finding out what options are available and best suit your needs is the greatest challenge.
Here are the choices under current tax law. Not all are available to every type of asset sale. There are many rules to follow for each, but below the concepts are explained briefly for the sake of this article.
A 1031 exchange. If you have real estate held for investment, this is a good continuation strategy, because you can exchange your property for another of equal or greater value and defer all of your tax consequences. You can also do a 1031 exchange into a tenant in common property if you no longer wish to deal with the headaches of being a landlord and property manager.
A Charitable Bargain/Installment Sale. Used in combination, this is the most recent offering and perhaps the most beneficial of all of the exit strategy choices. You are basically exchanging your asset (business, real estate, stock portfolio, collection, cash, annuity, etc.) for a series of guaranteed payments over a fixed number of years. You are able to spread out your taxable obligation (the capital gains tax burden) over these years and pay it in small chunks versus one huge lump sum at time of sale. Although the recaptured depreciation (if applicable) is paid in the year of the sale, the amount due is significantly reduced by the charitable deduction and the amount forever forgiven. There are also additional benefits to you, as a public charity makes the sale for you. Among them are:
A large charitable deduction up front that can be used to reduce your taxable income from all sources by 30-50%, depending on the type of asset sold. This can be carried forward for up to 6 years total if not fully used in the first year.
A partial forgiveness of both capital gain and recaptured depreciation (if applicable) forever.
Return of the entire asset (less pledge amount) over the stated contracted period with 5.5% interest as a series of guaranteed payments.
Less and less taxable income each year from the amortization schedule of the payments.
A contribution to charity for a good cause without significant loss of principle as in the other charitable sales.
The time/value of compounding money, since the bulk of your tax burden remains working for you over time.
The asset is partially removed from your estate.
The asset passes to your heirs per your instructions should you pass away before receiving all of your guaranteed payments. They can receive it in trust to minimize their tax burden, or as a lump sum with remaining taxes due at receipt.
A Charitable Remainder Trust (CRT, CRUT, CRAT, etc) or Charitable Gift Annuity.
These methods are well documented and do have their place. Basically, the asset (or major portion of it) is earmarked for a charity at your death and you, the seller, receive an up front tax deduction and the interest the asset is able to generate during the course of your lifetime. Your tax burden is relieved since a charity doesn’t pay taxes, but you may have to pay recaptured depreciation and other taxes from a mortgage payoff at time of sale. This option is usually best suited for those with large estates and charitable intentions. It also can be used in combination with the charitable bargain/installment sale if the intent is to get the biggest up front charitable tax deduction, and with a Dynasty Trust if you need to remove the entire amount from your estate.
A Structured Sale. This strategy is offered by a couple of large insurance companies to spread out the capital gains tax obligation over time. Your buyer assigns the obligation to make installment payments back to you over a fixed number of years at a fixed interest rate to an Assignment company owned in part by the associated insurance carrier. The proceeds are invested in a Single Premium Immediate Fixed annuity which will make the payments back to you over the designated number of years. All recaptured depreciation must be paid up front and no additional tax deductions are offered except the ability to spread out your capital gains tax obligation over time. You are locked in at a fairly low interest rate for the length of the contract. One should always compare the benefits side by side, but this option does impose several major limitations.
A combination of two or more of the above options. It doesn’t have to be all or nothing, and you may choose to keep a portion out and pay taxes at time of sale.
The worst injustice you can do is not educate yourself on the options available to you. You always have the right to pay your tax bill, but doing it from a position of knowledge assures you that you have all the facts and choose what is in your best interest.
Paula Straub
www.savegainstax.com
(760)917-0858
Fill out the Qualification Questionnaire to see if you are a good candidate to Save Capital Gains Tax
Thursday, February 08, 2007
"Interview with the Pros" is Revised for 2007
With all of the new and exciting changes in Capital Gains Tax savings, the new revised version of my Interview with the Pros series has been updated for 2007.
You will hear directly from the founder of the charitable foundation offering the installment sale through the foundation for maximum tax savings. The information of how a charitable bargain sale is combined with an installment sale to provide a guaranteed income stream, charitable tax deduction and partial forgiveness of capital gain tax and recaptured depreciation is explained in simple language.
Your CPA and attorney will love this important information. You will know what only about 1% of any potential seller or their counsel even aware of.
My segment is new as well, detailing how the recent changes have opened up ways to help people that didn't exist last October.
Here's the new link Interview with the Pros - 2007 Revision
If you have more than 100K inequity in any investment you are selling, you will receive your investment back tenfold by learning this information prior to sale.
You DO have great options!!
Paula Straub
760-917-0858
Qualification Questionnaire - Find out if you qualify to save thousands in taxes
You will hear directly from the founder of the charitable foundation offering the installment sale through the foundation for maximum tax savings. The information of how a charitable bargain sale is combined with an installment sale to provide a guaranteed income stream, charitable tax deduction and partial forgiveness of capital gain tax and recaptured depreciation is explained in simple language.
Your CPA and attorney will love this important information. You will know what only about 1% of any potential seller or their counsel even aware of.
My segment is new as well, detailing how the recent changes have opened up ways to help people that didn't exist last October.
Here's the new link Interview with the Pros - 2007 Revision
If you have more than 100K inequity in any investment you are selling, you will receive your investment back tenfold by learning this information prior to sale.
You DO have great options!!
Paula Straub
760-917-0858
Qualification Questionnaire - Find out if you qualify to save thousands in taxes
Wednesday, January 31, 2007
Californian's Get a Break in 2007
Among new laws taking effect for investment property sales after January 1, 2007 , this one gives a break to most real estate investment property sellers.
Here's an excerp from a San Francisco newpaper article:
-- Lower withholding on property sales: If you sell any type of real estate other than your primary residence for more than $100,000 in California, the escrow company is usually required to withhold part of the proceeds for state taxes.
The old withholding rate was 3.33 percent of the sales price.
"Many times that resulted in over-withholding," says Denise Azimi, a spokeswoman for the California Franchise Tax Board. Sellers had to wait until they filed their return to recoup the excess tax.
Now you have a choice: You can request withholding at the old rate or an amount equal to your estimated capital gain, taxed at your marginal state-tax rate, which for most individuals is 9.3 percent.
If you sold a $1 million property with a $100,000 capital gain, under the old law your withholding would have been $33,333. Under the new option, it would be $9,300, assuming a 9.3 percent tax rate.
The new law applies to property sold starting this year.
-------------
This is especially important to sellers with a high selling price and fairly small gain. I've had client's tell me nightmare stories about having to take out home equity loans to cover the franchise tax!
We here in California will gladly take any new tax breaks we can get!
Paula Straub
www.savegainstax.com
Questionnaire to find out if you qualify to save thousands in Capital Gains Tax
Here's an excerp from a San Francisco newpaper article:
-- Lower withholding on property sales: If you sell any type of real estate other than your primary residence for more than $100,000 in California, the escrow company is usually required to withhold part of the proceeds for state taxes.
The old withholding rate was 3.33 percent of the sales price.
"Many times that resulted in over-withholding," says Denise Azimi, a spokeswoman for the California Franchise Tax Board. Sellers had to wait until they filed their return to recoup the excess tax.
Now you have a choice: You can request withholding at the old rate or an amount equal to your estimated capital gain, taxed at your marginal state-tax rate, which for most individuals is 9.3 percent.
If you sold a $1 million property with a $100,000 capital gain, under the old law your withholding would have been $33,333. Under the new option, it would be $9,300, assuming a 9.3 percent tax rate.
The new law applies to property sold starting this year.
-------------
This is especially important to sellers with a high selling price and fairly small gain. I've had client's tell me nightmare stories about having to take out home equity loans to cover the franchise tax!
We here in California will gladly take any new tax breaks we can get!
Paula Straub
www.savegainstax.com
Questionnaire to find out if you qualify to save thousands in Capital Gains Tax
Monday, January 29, 2007
Time to Sell Florida Investment Property?
Hi All,
I've been getting a ton of calls from Florida property owners lately. There is a very good reason for this.
Three things have happened in the Florida real estate market in recent years.
First, property values have increased dramatically. That's good news, of course.
Second, property is being reassessed for the higher values and property taxes are increasing rapidly. Not so good...
Third, due to the recent hurricanes, homeowner's insurance is either being canceled or has become so cost prohibitive that many people can no longer afford it. Again, not good for owners.
My parents live in Florida on a fixed income. They own their home outright, so have the option of not having home owner's insurance. Their carrier is pulling out of the Florida market completely. The 'replacement' carrier is almost tripling the premiums and increasing the deductible. They have decided to take their chances and go without.
For those with mortgages, this is not an option. Most lenders require you carry insurance.
So, now many retirees are finding they can no longer afford to remain in Florida. They are selling their homes and moving to places like the Carolina's and Georgia. Those with second homes are also selling.
Their residences have often appreciated and the sellers will face capital gains issues.
Also, many people own rental properties in Florida. What used to generate a decent income for them, now barely turn a profit. With the tax and insurance increases, the rent profit is diminished considerably. Rents cannot be raised enough to offset the expenses.
Here also there will be a capital gains tax problem on sale.
There are ways to minimize this burden. If you are selling Florida property or know someone in this situation, fill out a questionnaire or call me at 760-917-0858. I can help.
Paula Straub
ps. Check out the new Beginner's Guide to Saving Capital Gains Tax
I've been getting a ton of calls from Florida property owners lately. There is a very good reason for this.
Three things have happened in the Florida real estate market in recent years.
First, property values have increased dramatically. That's good news, of course.
Second, property is being reassessed for the higher values and property taxes are increasing rapidly. Not so good...
Third, due to the recent hurricanes, homeowner's insurance is either being canceled or has become so cost prohibitive that many people can no longer afford it. Again, not good for owners.
My parents live in Florida on a fixed income. They own their home outright, so have the option of not having home owner's insurance. Their carrier is pulling out of the Florida market completely. The 'replacement' carrier is almost tripling the premiums and increasing the deductible. They have decided to take their chances and go without.
For those with mortgages, this is not an option. Most lenders require you carry insurance.
So, now many retirees are finding they can no longer afford to remain in Florida. They are selling their homes and moving to places like the Carolina's and Georgia. Those with second homes are also selling.
Their residences have often appreciated and the sellers will face capital gains issues.
Also, many people own rental properties in Florida. What used to generate a decent income for them, now barely turn a profit. With the tax and insurance increases, the rent profit is diminished considerably. Rents cannot be raised enough to offset the expenses.
Here also there will be a capital gains tax problem on sale.
There are ways to minimize this burden. If you are selling Florida property or know someone in this situation, fill out a questionnaire or call me at 760-917-0858. I can help.
Paula Straub
ps. Check out the new Beginner's Guide to Saving Capital Gains Tax
Tuesday, January 16, 2007
New Real Estate Investor Product is Launched
It's been in the works for quite a while and now it's online!
Since many of my readers and clients are real estate investors I wanted to put together an educational product addressing issues related to the sale or exchange of real properties.
Whether you are just beginning your real estate investing career or are an old hand with a large porfolio, you need to know what options you have as exit strategies when the time comes to sell. If you don't, you may be burdened with a much greater tax obligation than you ever anticipated.
"The Definitive Beginner's Guide to Potentially Saving Hundreds of Thousands of Dollars in Capital Gains Tax" is available for download at:
Beginner's Guide Resource
There are also a couple of great bonuses thrown in and the cost is minimal.
So, go right now and check it out. If you are still actively investing, this knowledge can be used to your advantage when purchasing property as well.
If you educate the seller that they have options to minimize their taxes, that may seal the deal and put you ahead of your competition.
Paula Straub
760-917-0858
askpaula@savegainstax.com
Qualification Questionnaire for quick personal reply
Since many of my readers and clients are real estate investors I wanted to put together an educational product addressing issues related to the sale or exchange of real properties.
Whether you are just beginning your real estate investing career or are an old hand with a large porfolio, you need to know what options you have as exit strategies when the time comes to sell. If you don't, you may be burdened with a much greater tax obligation than you ever anticipated.
"The Definitive Beginner's Guide to Potentially Saving Hundreds of Thousands of Dollars in Capital Gains Tax" is available for download at:
Beginner's Guide Resource
There are also a couple of great bonuses thrown in and the cost is minimal.
So, go right now and check it out. If you are still actively investing, this knowledge can be used to your advantage when purchasing property as well.
If you educate the seller that they have options to minimize their taxes, that may seal the deal and put you ahead of your competition.
Paula Straub
760-917-0858
askpaula@savegainstax.com
Qualification Questionnaire for quick personal reply
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