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Top ten tax saving opportunities
by Tony Novak, CPA, MBA, MT
Note about 2013 tax planning:
The tax increases scheduled for January 1, 2013 are larger than any
previous year and more challenging from a tax planning perspective. We
urge individuals to call to schedule a comprehensive tax planning
discussion as early as possible to address these significant issues.
There are many opportunities to reduce income taxes built into the today'
tax code. Individuals who develop a financial plan incorporating a long term tax
strategy and then conduct periodic tax planning reviews are most likely to
realize savings. This listing below is meant to highlight the planning
possibilities but is not intended to be a complete discussion of all of the
- Tax-free gain on the sale of a home. Up to $500,000 for married couples
and $250,000 for single people. There is no need to reinvest in another house,
but if you do you can rake in another tax-free gain again in a few years. This
is a great way for a single contractor, for example, to increase after-tax
income and net worth.
- Deduct up to 100% of income up to $205,000 for contributions to a pension
plan. This is an extraordinary opportunity for high income people close to
retirement age who are self-employed or work in a small business.
- Write-off of up to $100,000 of purchases used for business. This break has
been nicknamed the Range Rover write-off. Even if you bought it with a 100% loan
and have not yet made the first payment, the entire purchase price is
immediately tax-deductible. This tax break was meant to spark economic recovery,
and it seems to be working.
- 4. Receive tax-free reimbursement for out-of-pocket health care expenses. Use
a Medical Savings Account (MSA) if you are self-employed or a Health
Reimbursement Arrangement (HRA) if you are an employee. Even better tax-saving
opportunities are expected soon using Health Savings Accounts (HSA). This should
be an easy way to save $1000 per year in taxes.
- 5. Tax credit for low income individuals who make retirement plan
contributions. The federal government effectively matches 50% of your deposit
with a tax credit. Of course, the problem is that low income people do not have
money to make retirement plan contributions. But parents could make a gift of
IRA deposits to their children, for example, to effectively earn an immediate
50% return on their investment.
- Transfer assets to the next generation. The combination of estate
tax repeal combine with standard estate planning strategies make it easy to make
tax-free transfers of assets to the next generation.
- Use executive benefits to defer income. Despite recent tightening of rules
for stock options and deferred compensation plans using corporate-owned life
insurance, it is still easy to defer income using an employee benefit plan.
- Life Insurance owned by a trust or a business. Gains are still tax free when the policy owner and
beneficiary are individuals. It rarely makes sense to waste that benefit.
- Non-cash deduction for real estate depreciation. While you watching your
rental properties rise in value, you may write off part of the purchase price
and fix-up costs up to $25,000 per year even if most of the purchase price was
- New asset-based mortgages for affluent individuals make it easy to
finance 100% of the value of a primary home or vacation house. The interest is
deductible and at today'
s low interest rates, many are using a "cash out"
refinancing to free funds for investments and other ventures.
Before committing to any tax strategy, complete a pro forma tax return to
test the strategies for your unique situation. Pay special attention to income
based phase-outs and the alternate minimum tax.
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Opinions expressed are the solely those of the author and do not represent the
position of any other person, company or entity mentioned in the article. Information is from sources believed to be reliable but cannot be guaranteed. Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues or a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. Tony Novak
operates as an independent adviser under the trademarks "Freedom Benefits", "OnlineAdviser" and "OnlineNavigator"
but is not a
representative, agent, broker, producer or navigator for any securities broker dealer firm, federal or state health insurance marketplace or
qualified health plan carrier. He has no financial position in any stocks mentioned. Novak
does work as an accountant, agent, adviser, writer, consultant, marketer, reviewer, endorser, producer, lead generator or referrer to
other companies including the companies listed in the articles on this
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