December 31st is quickly approaching. And as of this date, you will not be able to put any strategies in place to maximize your tax savings for 2021.

Have you taken all the steps necessary to maximize your tax savings for 2021?

During this discussion, Tom Gibson, CPA, and Kami Elhert discuss the most important things you must do to maximize your 2021 tax savings before December 31st, including:

  • Maximizing the home office deduction calculation and reimbursing your expenses
  • Blending your company’s annual meeting into your vacation
  • Incorporating an alternative bonus plan and the utilization of achievement awards
  • Appropriately transferring funds via tax-free rent, hiring your kids, and management fees
  • Projecting expenses and depreciation


  • on

Transcript (edited for clarity)

Kami Elhert: Hello and thank you for joining our monthly webinar. Today we will be reviewing end of year tax tips for 2021. During the webinar, we will discuss maximizing your home office deduction calculation and reimbursing your expenses, blending your company’s annual meeting into your vacation, incorporating an alternative bonus plan and utilization of achievement awards, appropriately transferring funds via tax-free rent, hiring your kids, management fees, as well as projecting expenses and depreciation.

I’m Kami Elhert, Senior Client Relationship Manager, and today I’m joined by Tom Gibson, CPA and TSP Family Office’s Senior Tax and Financial Strategist. Welcome, Tom. Thanks for joining us.

Tom Gibson: Kami, I haven’t seen you in two minutes. 😊 Good to see you.

Elhert: Good to see you, too!

Let’s kick off. I know we want to talk about one of the most important parts of claiming tax deductions, record keeping. We talk a lot about documentation to support the strategies we recommend, but I do want to talk a little bit more about record keeping and receipts.

One of the big apps that Tom and I do recommend a lot to our clients for tracking mileage is MileIQ. It’s a great app that runs on the back of your phone or at the back of your GPS. Every time you get into your vehicle and stop the vehicle, an alert comes up and asks whether this was personal or business travel. At the end of the week, month, quarter – however you choose to have it set up – it will send you a report of your business mileage and personal mileage use. The other great thing about this app is it is free with Microsoft 365 Business Premium. All you have to do is just set it up.

Tom, mileage is one of those deductions that people ask, “Couldn’t I do this for maybe just two months to give me a baseline for my CPA?”

Gibson: That’s absolutely right. I was working in a public accounting firm when the second Reagan tax act passed, which was when people started to have to keep mileage logs. Now, back in the 80s, that meant you carried around a silly little notebook in your car and you had to write it all down and track your odometer readings. Big pain in the neck. Nobody ever did it. So we still did a lot of educated guessing at the end of the year to come up with what a person’s mileage was going to be.

This is so easy. The MileIQ app, I think, is as easy as it’s going to get in terms of keeping mileage. And here’s the thing: people always think that they’re driving less for business than they really are. But Kami hit on a great point. Ideally, if you did this for the whole year and used MileIQ, you would have an absolutely ironclad record of how many business miles, personal miles and so on, you had for the year.

But, yes, the IRS will accept a baseline if you do it for a three-month period as long as those three months are representative of your normal driving patterns for business. You can keep it for three months, check your odometer at the end of the year, and extrapolate out that three months’ worth of percentages for the entire year. Kami touched on record keeping. It’s absolutely crucial. And MileIQ is such a huge step in making something that is very laborious pretty simple.

Elhert: Another great app that we talk about a lot is Shoeboxed. It’s similar to MileIQ but helps manage and organize your receipts. I’m sure back in the Reagan administration, when clients would arrive for you to prepare their taxes, they would literally show up with a shoebox full of receipts which you would have to painstakingly go through. Thankfully we’ve come a long way and we now have apps that are very user friendly.

One of those is Shoeboxed. It’s a really great app that you can download, and it takes pictures of your receipts. It is trained to extract the data, organize receipts by vendors and dates, and you can also create clear and comprehensive reports as well. So, instead of keeping track and needing to remember what a receipt was for or who you were with – why you were having dinner on January 3rd and what the business purpose was – with this app you just pull out your phone, snap a picture of the receipt, it downloads that data, and then you can also make a note so you know that you had a business dinner discussing financial statements for the end of the year. Now you have fully documented that dinner and you no longer need bring that actual shoebox in to your CPA or try to reconcile after the fact.

That’s one of the things that is very important: making sure that the receipts and your records are accurate.

Gibson: Generally, people’s memories are as good as the paper that receipt is written on. That’s the thing about these apps, you don’t have to remember. You snap a picture. You make a quick note as to what you’re doing and then you can forget it from that point forward because you’ve captured that information.

Elhert: We not only want our clients to take every deduction that they’re entitled to, but we do want to make to make it as easy and convenient as possible.

One of the deductions that comes up every year is hiring the children and making your children have been paid before the year end. Payroll services are strongly recommended here in the office to ensure your children are being paid and paid on time. There are a lot of services available, such ADP. A lot of our clients are using Gusto and Paychex is another that’s been around for a while. But Tom, what are your thoughts, especially for some of our sole proprietors or Schedule C clients that maybe only have their family on the payroll, who think, “We’ll just write the check at the end of the year?”

Gibson: Well, two things. One, you’re depending on remembering to do something between the week between Christmas and New Year’s. If you feel compelled to wait and write the check at the end of the year, I want you to write it on December 1st, not December 31st, because you’ve got a shot at remembering to do it on December 1st if you put it on your calendar right now while we’re talking. But if you forget it, we lose that deduction for the entire year because, once midnight passes on December 31st, we can’t go back and retrofit it.

Payroll, just by the nature of things, it’s very complicated. It’s very time consuming. And it’s a place where it’s very easy to make expensive mistakes. Failing to file an unemployment tax return, for instance, you get dinged for $100. Failing to file your 941s, again, another penalty. The money that you spend with the payroll service to let them handle all of that for you and make sure it’s done correctly and, just as importantly, on time is money well spent. If you have an existing payroll in your business, it’s always easier to add family members on to the regular payroll with the rest of your employees. We’re big fans of set it and forget it. If you are a Schedule C business or maybe a family-owned partnership or you and your spouse own the business together and you don’t really have payroll, then Gusto is a great choice.

Gusto is very inexpensive, and it is very user friendly. And again, it accomplishes the same thing. We get folks set up on payroll, we get their salaries in, and then we just forget it and let them take care of payroll. But, having worked with clients who tried to do their own payroll when I was in public accounting and walked into companies as a CFO where they have been doing their own payroll, I can think of multiple occasions where, three months down the road we figured out there was big, huge problem with payroll. All of which could have been avoided for $10 per employee per month to let somebody else do it.

Elhert: And Tom, you and I know how quickly the year can get behind us. I mean, I can hardly believe that it’s almost November as it is. But as time goes on and we suddenly find ourselves in December, sometimes we forget about all those important life changing events.

Gibson: At this point in the year, we’re finally getting everyone’s tax returns for 2020. The deadline was, of course, the 15th, and now they’re starting to trickle in. We’re busy doing projections and other things. But even if I’m looking at that 2020 return, there may have been some things that happened in your life this year that I don’t know about at this point. One, we’ve had some clients who have gotten married this year, which changes which tax table we would use to compute your savings. And we’ve had some clients who’ve gotten divorced. Change of marital status is something you need to make us aware of.

If you have a new child in your home this year, that’s something that we want to know for two reasons. One of those reasons is, if you have a business, we want to get that child on payroll just as quickly as we can. Assuming, of course, they’re a nice-looking child and we’re going to hire them for corporate modeling. I’m just teasing. Everybody’s kids are good looking.

If you have a new business this year, you want to make us aware of that. If you’ve sold one of your existing businesses, maybe you own some rental property and you’ve sold that. Again, that’s something that we want to be aware of. If you purchased a new home this year, well, there are some new deductions that you’re going to be entitled to that we want to bake into the cake.

If you have purchased or sold investment real estate, particularly if it’s a commercial building, that might give us some opportunities for cost segregation, for example.

Outside of the realm of new kids, maybe you have taken on financial responsibility for another family member. Maybe a parent has moved in with you or a sibling. Again, these are the types of things that we want to know about. There may be some opportunities to do some tax planning.

And certainly, if you’re going to be retiring in the short term, that’s something that we want to be aware of. As many of you know, we have been working over the last couple of years on Roth conversions. And for some of you who maybe have not been able to do Roth conversions because your 401(k) or your 403(b) wouldn’t allow that, when you separate from an employer – whether you take a new job or you retire – you have the opportunity to roll all of that out into a traditional IRA and then we can start working on Roth conversions, even if we’ve not been able to up to this point.

Elhert: All very important stuff. If any of these have occurred in the last year, we would like to know. Please make sure to reach out to your relationship manager so that these changes can be discussed when we are wrapping up the end of year tax planning.

We’ve talked about receipt and record keeping, which are all very important and we definitely want to make sure they are on our radar, but documentation is another huge part of end of year tax planning as well as making sure that you are buttoned up tight for this tax year. That way, if anything does come up, you have all of the supporting documentation for the strategies we recommend.

Gibson: Absolutely. With any business, and this is true of any deduction in the tax code, there’s a right way to do things and there are several hundred wrong ways to try to take the same deduction. The differentiator between the right way and the wrong many times hinges on the documentation behind it. Kami is is going to run through some of the scorecard examples and talk a little bit about the things we want to make sure we get done prior to the end of the year.

Before we do that, however, I wanted to mention something very important. I had a call with a client yesterday. We have been sending out his tax saving portfolio for a few years and he asked me, “Do I need to sign the documents in those tax saving portfolios?”

You absolutely need to sign them. You need to sign them when you receive them as we have told you to do. At this point, he has four binders that don’t mean anything because he has not actually executed those documents. Again, we’re not trying to fuss at you, we’re trying to make sure that you are, as Kami said, buttoned up as tight as you can be.

Elhert: Yes. And one of the most important documents we talk about doesn’t necessarily have a lot of sway as far as the deductions are concerned, but it does have a lot to do with what the IRS requires as far as reimbursement. That is the accountable plan. We have the accountable plan in place for a few purposes. The IRS requires one for any business that reimburses for business expenses. But it’s also another way we can incorporate the home office.

Gibson: Any time you give cash to an employee, in the absence of an accountable reimbursement plan, that is understood to be a form of compensation. If you’re reimbursing them for mileage and you don’t have an accountable plan in place, technically the IRS can come in and say, “You say you’re reimbursing the mileage, but you don’t even have policy in place to do that. So we’re going to add that to the employee’s W-2 wages. And oh, by the way, we’re going to charge them for FICA and Medicare on it. We’re going to charge you FICA and Medicare on it. And we’re probably going to charge you a penalty because your quarterly returns have been wrong for the periods of these reimbursements.”

The accountable plan protects you, and it protects your employees. For those of you who have S-Corporations, remember you’re an employee, too, even though you own the business. The accountable plan spells everything out. It makes very clear that this is an expense reimbursement. It is not income to the employee.

Elhert: As Tom said, having these documents executed, as well as ensuring the information is correct according to what the IRS standards are, is very important to being able to take some of these deductions.

Another big deduction is tax-free rent. One of the important documents that really substantiates the agreement and those meetings being held is the lease agreement. The lease agreement is a formal document between the business and the homeowner. The next step is determining the rate. We want to make sure that the rate we choose is appropriate for where the residence is. Instead of just pulling a number out of thin air, we go through the area that you live in, call around to various conference centers and ask for a quote that matches exactly what is listed in the lease agreement. We want a conference room. We want wireless access, a projector screen if possible. We obtain two or three quotes and average the rate. That’s how we obtain the rate. This is done on a yearly basis to ensure that the rates are still good and that we’re not using rates from 2019.

Once the executive lease agreement is in place, you’ll also need your meeting minutes for the meetings held in the home. We want to make sure that these are all buttoned up correctly. We encourage everyone that has these meetings to, first, make sure that all the dates coincide with the meetings that were held in the home. Secondly, we want to make sure that all the information on the meetings is correct. If you had an associate versus your spouse in the meeting, we want to make sure that the spouse is excluded from the meeting and the appropriate associate is added. Any and all discussion points on the agenda, we want to make sure that these reflect your business needs and your business-specific purpose for having the meetings. As travel is much more relevant this year, we also want to make sure you are in town to have the meetings. Setting up a standing meeting is great, but we all know life events happen. If you were unable to have the meeting, we want to make sure that your waiver, your meeting minutes and your invoices are reflecting the correct date that the meeting was actually held.

We also want to make sure that all invoices are paid prior to December 31st of 2021. We can’t stress that one enough. We’re huge fans of set it and forget it, but a lot of times a client will say, ” I’ve got it on my calendar and I’m just going to write one big lump sum check at the end of the year on December 31st. That’ll make sure that we’re all buttoned up there.” Tom, do you want to talk a little bit about how that can go askew real fast?

Gibson: All it takes is a New Year’s Eve party that you get to a little earlier than you had planned to, to throw your whole plan into disarray for the year. As Kami said, we are huge fans of set it and forget it. Set up a monthly transfer from the business account to the personal accounts, record that in QuickBooks, code it as being a rent expense. That’ll get 12 out of the 14 in and you don’t have to think about it. We’ll have to remind you maybe in June and maybe again in December, “Hey, let’s write one more check for these two months.”

The other part of this is the IRS. When you’re dealing with a corporation, even if it’s one that you own, 100% things need to be done in a businesslike fashion. So, the reason that we are fans of transactions as opposed to journal entries is pretty simple. If you went to the Nevada Museum of Art or the Radisson or the casino, if you were renting and holding meetings there every month, they wouldn’t let you wait until December to pay them. You would have to pay them as you were having meetings because it’s a business transaction. You need to do things between your corporation and yourself in exactly the same way. To you, to your corporation, you’re just another vendor. And so just treat yourself the same way that you would treat any other vendor. And again, if you can, set it up and make it as automatic as possible. That way, “Hey, I forgot to write those two extra checks in June and December.” Well, that’s okay. We got 12 at 14 in. We didn’t lose the entire deduction because we’ve been waiting to do it the last day of the year.

Elhert: I always tell our clients to pull out their smartphone and set a reminder on June 15th and another reminder on December 15th saying, “Did you have your extra meeting? Make sure to make that extra payment for the meeting that was held in my home.” We’re all glued to our cell phones. Smartphones can really save and help pick up those extra two payments as well.

I also encourage our clients to put the meeting dates on their calendars. You’re having these meetings. You would have an appointment with your clients on your calendar, I’m sure. So why wouldn’t you do the same for these meetings that are being held? We work really hard to come up with standing meeting dates, and sometimes those are great. Sometimes they don’t work out. But getting into that rhythm where you have that repetitive calendar reminder to have those meetings is another way to substantiate and ensure that you’re actually having the meetings and able to be paid for those meetings held in the home.

Gibson: Just another free tip. It’s always a good idea to put your spouse’s birthday on your work calendar. I didn’t do that this week, and it was an expensive mistake. It’s going to be very expensive for me to rectify that. So put your spouse’s birthday on your work calendar because if it had been there, I wouldn’t have left the house without saying happy birthday.

Elhert: That’s right. The business calendar is probably more important than the personal calendar. So, Tom, go ahead and put that on the calendar because I didn’t see it added.

Another big deduction, and one that not a lot of our clients go through all the steps for, is the home office. This is one that, if I was a business owner, I would be tickled to be able to take advantage of for a few reasons. One is recapturing some of those expenses that you are spending on utilities anyways.

Tom, from a CPA’s point of view, would you just absolutely love your clients if they had specific measurements for their home office?

Gibson: Absolutely. If you utilized the Excel document that Kami and the other relationship managers provide for this and you just carry it into your CPA at the end of the year, particularly if you have a sole proprietorship, he will be so happy because you’ve made his job so much easier. Now, if you are reimbursing yourself for these expenses through your S-Corporation, then this document becomes your invoice. That is what you’re using to substantiate that payment the corporation made to you and explains what kind of transaction it is. It’s not a shareholder distribution, it’s a reimbursement for the costs associated with your home office.

Most of us at this point, I think, probably pay most of our bills online. I’m looking at the things that we’re picking up with the exception, maybe of your cleaning lady. So you sit down in April, and you just drop your numbers in from your various vendors to calculate the percentage of your expenses you can attribute to your home office and turn that in. It’s super easy, super simple. And again, if you’re a sole proprietor and you give this type of information to your CPA, he’s just going to drop it in.

This is one of those deductions people think, “That’s probably not going to amount to much.” Well, try it for a year and see what it amounts to. It will almost likely be more than you expect. If you don’t want to do it going forward, that’s totally up to you. But at least tried for it 12 months and see what kind of deduction it generates for you.

Elhert: Going back to what Tom said, quarterly tracking is what we recommend. Again, having those transactions is crucial. We really want you to be in the habit of doing this at least quarterly because, again, you wouldn’t be able to only pay your electric bill at the end of the year. Make sure that those business expenses are being paid appropriately.

Just a reminder, all of your reimbursement checks need to be made prior to December 31st, 2021. And all of those payments are considered office expenses.

We did talk briefly about setting up payroll and Gusto, but another strategy we encourage our clients to utilize is hire the children. So hiring your kids, putting them on payroll. For younger children, they are eligible to work in the business as a corporate model. But, as the kids start getting older, there’s a lot more flexibility. It also increases the salary they can earn, especially for children going away to college. Having them work remotely, as a social media manager or online monitor, things of that sort, can really help with some of those expenses that you’re already paying for college by turning them into a substantiated business need since they are on the payroll and performing job duties for you.

In addition, any child under the age of 18 does need to have a custodial bank account established.

Gibson: That’s correct. And I want to be very clear on this. The money that your children earn working in the business, it’s their money. It belongs to them. Which is why they need to have their own bank account that that money is deposited into. Now, mom and dad have control over that money until the child reaches age 18. And you can spend those funds on things that are in the child’s best interest. So dance lessons, music lessons, 529 plans, private school. All of those fit the bill. But again, keep a record of what you spent that money on. I say that only because if your child sues you down the road for malfeasance, you want to have a good set of records so you can destroy him in court. But really, you need to be able to show that you were complying with the intent behind the custodial fund.

That’s what I did for my kids. I had a folder with each child’s name on the outside, and when I paid something, I threw the receipt in the folder. That’s how detailed it was.

But you do need to set up that custodial account and you need to, of course, make sure that what you’re paying them matches what the employment agreement says. And they need to be paid by December 31st. Now, if the kids have not been working and you come on as a client in September, we’re not going to try to catch up because they haven’t been doing anything. We would start them on payroll in September and they get paid for the balance of the year. If they had been working and they’ve just not been employees up to this point, it’s okay to catch them up and pay them for those services that they’ve rendered up to this point. We have a lot of folks come in and their kids are all over the website, they’re all over the social media. They’ve been using them as corporate models. They’ve just not been calling them that and they’ve not been paying them for it. When we bring them on board payroll, we can do a catch-up payment to cover those previous services rendered and then get them on a monthly or whatever payroll period you are on. Get them on salary going forward with that service.

Elhert: And keeping in mind, too, that if they are under the standard deduction…

Gibson: If they’re making less than $12,550 per year from all sources, then they’re not going to owe any federal income tax at the end of the year. If your business is a sole proprietorship, so a Schedule C business, or if it’s a family partnership where mom and dad are the partners who own the business, if the child is under 18, not only do they not have to pay federal income tax, they’re also not subject to FICA or Medicare taxes. If you have an S-Corporation, and that’s probably what we see more of than anything else, then you’re going to have to pay FICA and Medicare on the kids, but you won’t have to pay federal income tax because they are not going to owe anything at the end of the year. There’s no sense paying it in just so they can get a refund.

Elhert: And as we flow into speaking of S-Corporations, they are required to have annual meetings every year. The great thing is that there is no law that states that the annual meeting must be done in your hometown. So, when we talk about holding your annual meeting, we’re really talking about a way to add some business to a personal trip and converting it into a business deduction. We really encourage clients, if they do have travel coming up, to provide their relationship manager with the information beforehand. As Tom said, it’s much easier for us to plan and outline what business would need to be done and go over specifics for your company rather than try to remember or go back in time while you were on vacation to try and remember what was done and what was said during that business meeting.

Also, remember, travel expenses are deductible for college age employees, if necessary, for their annual review and/or any corporate modeling shoots. So, as the holidays approach and maybe you’re flying in one of your college age employees, those travel expenses are deductible. If that has already occurred, please provide that information to your relationship manager. If it was not already run through the business, we can provide any reimbursement forms that may be needed.

Same goes with the travel. If you did have any travel that was business related and you need to be reimbursed for it, we want to make sure that we do have the reimbursement forms you submit to the business. Again, just making sure that all of the documentation is there as well.

Next, one of the other great programs that we do have our clients implement is the Achievement Award program. Now, a lot of times it’s probably one of the least used because it can get a little complicated and seems very complicated to our business owners. But if you really break it down and understand the program, I think it can really fit into a lot of our clients’ bonus programs. Maybe their holiday parties they may be having. If they’re already giving out some type of bonus or incentive to their employees, this program is a great way to shift some of that.

A lot of times the tax savings is pretty nominal for the employer, right Tom? It’s nominal at that point.

Gibson: Yes. The difference between a $400 bonus and a $400 achievement award is for the employer, it’s FICA and Medicare. And that’s pretty much the size of it. The difference to your employee is very different. Not only are they not having FICA and Medicare withheld, they’re also not having to include that as part of their taxable wages for the year. So the benefit, really, it’s a big benefit for the employees, a little benefit for the employer, but it’s a great way to encourage folks and a nice thing to do if they’ve done a good job. 2020 was a tough year. 2021 has been a busy year for most of our clients. Everybody’s business is simply booming. So this is just a nice way to say thank you toward the end of the year.

Elhert: Absolutely. And to run over the rules of this, sole proprietors and Schedule C businesses, your family members on payroll aren’t eligible to receive one. Award eligible participants are eligible to receive an award up to $1,600 per year. However, the caveat to that is the IRS says the company average then cannot exceed $400. So easy math. Let’s say $400 or less for any employee that will be receiving the award. However, if you do have an employee who has maybe been with you for 10 years and you want to provide her with just something a little bigger than the other employees who have been there for less or are less productive in the company, reach out to your relationship manager. Obviously, you can give a $1,600 award, then we would just need to do some math and make sure that a few other employees receive a smaller award, maybe in the price range of $100. We want to gauge that and see how many employees will be receiving the award to make sure that we’re not exceeding the average that the employer or that the IRS has set in place for it.

Another thing to remember is to keep track of any of achievement awards that are given out throughout the year or during the holiday season. We want to make sure that we’re keeping below that average. Also, the IRS wants employers to have a meaningful presentation with this program. One way that we can make sure we’re following all the requirements the IRS set in place is to provide actual achievement awards from the employer to the employee. We ask that you take a picture with recipients and the awards they received.

Often companies will open a company Amazon account, pass around the iPad and say, “This year we’re going to do things a little differently. We’d like you to pick something up to $400. When it comes in, you’ll receive your achievement award, your actual certificate.” Take a picture of recipients, maybe post it on the company website or on social media. Now you’ve met all the requirements that the IRS has put in place for the achievement program.

Gibson: That brings up something interesting. You mentioned Amazon, and one of the things that we always warn people is the achievement award can’t be cash or anything that can easily convert to cash like gift certificates and pre-loaded debit cards and gift cards, generally. Amazon – and I’m not being paid to say this – is the exception to that rule. If you give your employees an Amazon gift card, they can’t get cashback. Even if they return the item, they can’t get cash back. It’s going to return the credit to the Amazon gift card. And Amazon only deals with tangible property, tangible items. If they have a $400 Amazon gift card and they want to get a new flat screen, that won’t cover the flat screen, but it will cover $400 of it. So again, a lot of times when people are accustomed to getting bonuses toward the end of year, often they already have something in mind that they’re going to use that for. You can buy just about anything on Amazon.

Elhert: That’s one of the things that I really like about the program, too, especially during holiday time. We hear this a lot from our clients that, “Oh no, my employees like cash.” And cash is great. Cash is always wonderful. But, in addition to the taxes being taken out of it, a lot of times you see that the cash is one in hand and out the other. Life events happen. Maybe the car breaks down or the holidays are coming up. They take that money and spend it on their own family members. I always use the example that it would be really great for my employer to buy me the Dyson vacuum for Christmas. I don’t know that if my husband took my bonus and bought me the new Dyson vacuum for Christmas, that would go over as well, right? So, a lot of times, when buying something tangible and allowing the employees to choose the item, they really end up choosing something for them. And it seems to be a little more meaningful because you’ve now given them something they appreciate, not just within a few months, but for the duration of the year.

Again, this is all company specific and what your employees like. It is a great program to implement even for incentive purposes. If you do end up implementing the program, please let your relationship manager know so that we can provide the supporting documentation, such as the Achievement Award Certificate.

Gibson: We are in the season where we are working very hard on projecting folk’s income between now and the end of the year. Kami and the other relationship managers will be reaching out to you. If you have a call scheduled with me or one of the other tax strategists, they’re going to be asking you for things. We need your year-to-date P&L statements. We need your balance sheets as of today. We need last year’s tax returns. And we’re asking for these things because we don’t want to waste your time on a call during which we can’t actually do a projection. So, when you get those requests from your relationship manager, please upload those documents. 99% of the time when we hop on the call the numbers will be already tuned up. It’ll will take about 10 minutes for us to figure out where we think you are going to land for the year, and we’ll have you ready to go for this year.

Which brings me to the other strategy that goes hand in hand with projections, the real estate investment that has the potential to go into conservation. Again, that’s something that we’re actively working on. Some of you have already subscribed to your project for this year. Some of you are going to be doing that over the next month. Just a reminder that there are three options with the real estate investment. The first option is always to develop the property, which for this year’s projects means going into the granite mining business. The second option is typically to hold the property and not do anything with it for the moment. The third option is to place the property into permanent conservation. As you’re getting those subscription documents done this year and wiring money for your project, you’re going to be voting for one of those three options along with the other partners.

Some other strategies that we have been working on this year are Roth conversions. We really have been working on that since the beginning of 2018. Under the current law, we’re able to take money from pre-tax retirement plans and roll that over into Roth arrangements between now and the end of 2025. That may change. The change that they’re proposing actually in some ways is an improvement over what we have. It stretches that timeframe out a little more. But we want to take that into account for this year.

Also, if you have large capital gains, long-term capital gains for this year, the opportunity zones offer a great way to defer the capital gains tax and also have some attractive investment features to the opportunity zones as well. If that is something that has occurred this year or that is going to occur before the end of the year, let us know because we need to know for the projections for real estate investment. But, also, we at least want to let you talk to someone about the opportunity zones because that’s something that also could have an impact this year.

Elhert: One thing, Tom, I know that you brought up is legislation and there’s been lots of talk and we’ve done webinars regarding the pending legislation, but another piece that adds to income projections is equipment purchases, right? Often that has been our business owners’ go to.

Gibson: A general rule of tax planning is you want to accelerate expenses into the current year, and you want to defer income into the next year. And that’s true most of the time. When it’s not true is when you expect the tax rates next year to be higher than the rates are this year. In that case, you turn that exactly around. You will pull income into the current year because you’re going to pay tax on it at a lower rate and you want to push expenses out to next year. We have, for example, several clients who have purchased or built buildings this year. Are we going to do a cost segregation study? We absolutely are going to do it. Are we’re going to take that deduction in 2020 as opposed to 2021? I don’t know yet. it depends.

The same thing with equipment purchases. Your CPA’s go to is always going to be to take Section 179 or take bonus depreciation. This year it may make more sense to just depreciate that piece of equipment over seven years as opposed to writing it all up this year. I’ve seen folks who would take these huge Section 179 expenses, and it would inadvertently create a carry forward on the charitable contribution. If you send me your S-Corporation return and I see that happening, I’m going to mention it.

There was a client I’ve had for several years who was in this situation. I told him, “Maybe we’ll think about depreciating instead of writing it off.” When his CPA realized what I was saying, he said “That’s exactly what we want to do.”

Which again brings up some advice particular to those S-Corporation and partnership returns. Let us look at those before they’re filed electronically. It’s easier to fix a return before it’s filed than it is to amend it. And I’ll remind you of that come next March and next September again. Let us see those returns before they go in and make sure that everything’s working together in your best interest as far as taxes.

And just generally on tax legislation, nothing has really changed. The proposal is still in the House. It’s still a proposal. And they’re still going around the mulberry bush about it. We have about nine weeks left in this year. I don’t know that we’re going to get any tax legislation this year. And what we get, I think, is going to be very different than the original proposals that we talked about on the webinar a couple of months ago or last month. So just keep your seat belts buckled and we’ll keep you abreast as we know more.

Elhert: We do have a question, Tom. It asks, “Since tax rates are probably going to go up for 2022, is there anything I can do to take advantage of the lower tax rates in 2021?”

Gibson: Make more money faster. I mean, that’s the short answer. And I kind of alluded to that a moment ago. If you can, do things to recognize income this year, particularly long-term capital gains income, because I think sooner or later the rates on long-term capital gains are going to go up.

Currently, the top rate is 20%. The number that they’re kicking around right now is 25%, which, on the face of it, doesn’t sound too bad. That shoots for 5% increase. But no. That’s a 20% increase if you look at it in terms of the change and rate. So, if you do have some long-term capital gains, particularly if you did a lot of selling last year and you’ve got these large capital loss carry forwards from 2020, if you want to take some profits between now and the end of the year and basically sell enough, lock enough profit in so that you can wipe out those capital loss carry forwards from last year, that wouldn’t be a bad idea at all. The market has not been doing so hot in the last little bit here, but when you’ve got an opportunity or if you have some things that you’re not happy with – some stocks that you’re holding that you’re unhappy with – you want to sell those, take a loss, and sell some other ones, you lock your gains in, and kind of even it out, that would not be a bad thing to do. But just in general, if you can pull income into this year and pay taxes at a lower rate, that’s what you want to be able to do.

Elhert: Thanks so much, Tom, for all of your time. If you have any questions or need any additional help, please reach out to us at (772) 257-7888. We’ll be more than happy to assist you. Have a wonderful day.