7 Ways to Beat the Taxman: Year-End To Dos

Somehow or other the taxman always seems to get his due. This year the hit from taxes feels particularly painful in the light of dipping home values, crashing  401ksand rampant job loss.  Despite all the bad news these days, taxes are still a fact of life. Here are few things you can do before the end of the year to minimize the taxman’s bite.

  • Donate to charity: “It’s always better to give than receive”–remember?  Many are far worse off than you are…Besides gifts to Goodwill, the Salvation Army and the like, you can also donate cash, property or household items. For these, deduct full market value.
    For some, donating a used car may be the best use of the vehicle. The rule here, though, is you can deduct only the amount the charity got for the vehicle, unless the charity keeps the car for its own use. Then you can deduct full market value.
    If by any chance you might have to pay capital gains on stock appreciation [yes, even this year, it’s certainly possible], you can donate the stock thus avoiding the capital gains tax and gaining the full value of the stock as a deduction. Just remember, starting in 2007 you need a written receipt for all donations.
  • Give Money Away. Did you know you can give up to $12,000 away to pay someone’s tuition or medical costs? You can even give away appreciated stocks. Just be sure the check clears by December 31st.
  • Accelerate Deductible Expenses: This means pay the whole of your property taxes now or make an extra mortgage payment or pay off those medical bills.  That way these deductions apply for 2008 tax year.
  • Defer Income. If you know your income is going to be especially high this year [lucky you!] , defer that end-of-year bonus or commission check until the beginning of next year.  Cashing in savings bonds can be delayed and you will still get the income.
  • Offset  capital gains. This is the time of year to take a good look at your investment portfolio and consider selling losing stocks to  offset your capital gains. The loss from the stocks will counter the gains acquired from others, lowering your tax bill and softening the blow from under-performing stocks.It’s also important to remember that net losses can be deducted in full against other income—up to a $3,000 annual maximum write-off. Losses offset gains dollar for dollar up to the $3,000 limit, which can make unloading losing stocks this year a smart financial move.
  • Contribute the maximum to retirement accounts. With the stock market swinging wildly from day to day or even minute to minute, many will resist this idea. Just remember you can have a self-directed IRA which does not have to invest in the stock market. Use it to buy real estate or whatever you think is going to be a good investment for your retirement.
  • Flexible spending Accounts. Do you have a flexible spending account? It’s a great way to save cash. And you can use the  tax-free money to pay eligible medical and child care expenses. You can use it to pay for medical or dental expenses that aren’t covered (or fully covered) by insurance, like glasses and certain over-the-counter medications. You can also set up an account to pay for child care while you work or attend school.
  • Thanks to LegalZoom.com for tax information.

    What Do I Do With My Money?

    Well, that seems to be the question everyone is asking. What do I do with the money I managed to save from the stock market crash?

    Bonds, Treasuries, gold, commodities, silver, money market, CDs, mattress, safe deposit box, annuities? When you get down to it, how many safe places are there? Are there any?

    This is really two different questions:  Where can I put my money so it’s safe?  or Where can I put my money so it will make money? If this past few months has you shell-shocked completely, you want the answer to the first question.  If you’re still in the game, the second.

    Here are couple of points to ponder whichever side you are on.

    The new FDIC limit of $250,000, insuring all your bank accounts,  is for one year only. Plus, in bailing out Indymac Bank, the FDIC used up half of its deposits. That is why other banks, such as Washington Mutual, are sold to other banks so as not to use up the rest of the fund.

    How about the old stand-by- Savings Bonds?  Now even that is severely limited. In a nearly unprecedented move earlier in the year, the United States Treasury set major restrictions on the purchase of Treasury Bonds allowing only $5,000 of any one type during the year and making paper bonds more difficult to purchase than ever before.

    Investment banks are now merged with retail banks. In eliminating the Depression-era separation of the two entities, the idea was that the massive debt of the investment banks in hedge funds and exotic instruments would be “offset” by the deposits of the regular banks. That is, your deposits in your bank would prop up the investment banks’ follies with “the full faith and credit of the U.S. Government.”

    The FDIC can’t bail out everybody, so in the event of more bad news only one more big bank can be bailed out. The rest of us? Oh, we’d get a percentage of our deposits or the government could resort to just printing more money and running the risk of hyperinflation.

    These truly are shaky times.  Yes, the stock market came charging back. Too late for me–I need to keep what money I managed to salvage and I won’t be giving it back to the madness that is Wall Street. I don’t really get all the other “safety nets”. How safe are they really? Gold has shot up to amazing heights, but, like Wall Steet, it can just as easily come tumbling down. The others, too, depend in one way or another on the “market”. Thanks, but no thanks.

    To me, the only asset worth investing in today is a hard asset, like real estate. Yes, real estate values are declining in many areas. Here’s what I like about real estate. Real estate  provides a way for the individual investor to control his own destiny. Buy a fixer and put some sweat equity into it. Sell it at a profit or rent it for cash flow. Buy a multi-family home and rent it out, again providing cash flow. People have to live somewhere either renting or owning.

    Here’s my advice: Take your dough and put it into a self-directed IRA and then invest it in real estate.

    Little-Known Use For Your IRA

    Diversification is key to investing. So say the gurus of Wall Street who handle our 401ks and IRAs. Of course, their idea of diversification means giving them all your retirement money, letting them allocate it among the financial products they handle. Given the performance of Wall Street lately, going that route seems more a suicide mission than sound retirement planning. Is this what you really want to do?

    With the collapse of the sub-prime market, the spread of the disorder to big financial houses like Bear Stearns and as far as the hitherto untouchable Asian markets, it’s getting harder to figure out how to prepare ourselves for retirement or even how to protect what we’ve got.

    If you can’t trust [and you clearly can’t]the Big Boys of Wall Street, who can you trust with your money?

    Who do you trust to take care of your physical health? Doctors? Hospitals? HMOs? You’ve known the answer to that for quite sometime now. You take care of your own health. You take care of your own family because no one else is going to.

    This is America, built on self-reliance. Who better to take care of your money than you?

    Luckily, you do have a little-known option to allow you to invest your own retirement money. Did you know you can put some or all of your retirement funds into a self-directed IRA ? If you do that, then you can invest in whatever you want, even real estate. Create your own diversification. That’s right. The IRS allows you to put your non-taxed retirement funds into IRAs which you then invest as you please. The profits are non-taxable, too, as long as they stay in the IRA. Just as in any professionally-managed IRA, you can’t remove the profits without paying taxes and penalties.

    Of course, there are a few rules to follow, but companies offering the self-directed option will be happy to explain them to you, though not to offer any investing advice. Where you invest is up to you.

    If you have looked longingly at the medley of short sales and foreclosures in your neighborhood or nearby, wishing you were able to invest, take heart. Now, you can! Use your self-directed IRA to invest in residential or multi-family properties, even commercial properties or land. You may not be aware of it, but tracts of land in Los Angeles County are for sale at reasonable prices. Buy in small or large increments at today’s low prices with your retirement funds and collect on the accumulated equity 5 or 10 years down the road. You can do that, too.

    For further information regarding your own particular situation, give me a call at 626-641-0346. I will be glad to help you to the best of my ability.