Watch Our Webinar on Year End Tax Planning

Streamed: Wednesday October 20, 2021
Duration: 30 minutes
Language: English



About This Webinar

Many businesses and investors underestimate how much money can be saved through year-end tax planning from Moskowitz. This webinar focuses on the benefits of year-end tax planning.



Webinar Transcript

Steve Moskowitz:
Tax planning is so vitally important to people. And something that I want to prevent is what I call March madness. What March madness is all about, not college basketball, but people saying, “You know what? I’m paying too much in taxes. I know there’s some secret handshake. What’s the secret? How are these Fortune 500 companies make billions of dollars and legally don’t pay taxes and wealthy people aren’t paying taxes. And I’m just the little guy and I’m paying taxes. What’s the secret?” The secret is tax planning. And almost everything except retirement planning, you have to do it by December 31st. So let’s go ahead and let’s see how we can save it. And this is for both businesses and individuals.

Now, what’s the difference between tax planning and tax preparation? Most people focus on preparation. That’s where you bring your documents to your tax preparer and he or she says, “Okay, I’m going to move the numbers from these pieces of paper to your tax return.” That should be the end of the tax process, not the beginning. That should be the mere summarization of a year’s worth of tax planning. Tax planning happens before, before the year ends to affect the taxes so you can legally pay less taxes. There’s all kinds of stages, we’ll go into that. The strategies, there’s multiple strategies. So what we do initially is we go ahead and say, look of all the strategies, here’s the ones that are going to be best suited for you and work on those. And then we get into the year end tax planning. So let’s get into the details.

And just one more, I could take your whole day talking about this because I get really excited about it. And there’s so much you can do and so much you can save, but we’re going to give you a quick tight webinar just to give you the flavor of it and then you can go ahead and contact us for a lot more detail. So that’s the whole idea of tax planning. What can we do to save taxes? We’re taking actions. So we’re actually sitting down and saying, look before December 31st do this and this and whatever you do, don’t do that. Not to mention setting things up for you. So we say, okay, what are we doing? We’re looking at your business life. What’s your gross revenue? What are your expenses and a whole variety of things.

For example, can we go ahead and accelerate those expenses? Can we defer and… Or maybe we should do it the other way around. Where we say, okay, look, we’ve had some losses and we’re going to do lost harvesting. So the bottom line is that’s the big difference between tax planning and tax preparation. Tax planning is where you’re going to save the money. That’s the blueprint. That’s the instructions, do this and this and this. Tax preparation is just the summarization of that. Basically, this is reaping your rewards. So when you can be like those Fortune 500 companies and say, “Hey, look at me, I’ve complied with the law.” And people ask the question, why should there be such a thing? And here’s the reason for it.

When we think about taxes, there’s two purposes to the tax law. Everybody knows about one, that’s to get money out of you. But the second one is in a democracy, the government can’t order you to do anything even though it’s good for the economy. So how does the government get you to do something they want you to do because it’s good for the economy and they can’t order you? They give you a tax incentive. They say, “Okay, if you do this, you can pay less taxes.” Or in some cases, no taxes. And then one of the things we want to do is we combine different things. It’s not just one item of tax plan. There’s many, many items, and we have to go ahead and combine them.

So the first part is the planning. That’s where we sit down with you and say, “Okay, look, we can go ahead and do this and this and this.” And we explain everything to you. We’re not the type of lawyers to say, “You know what? We know better than you sign here.” We explain it to you. The more you understand, the more you can save, and forgive me for saying this. The more you understand of what we’re doing, the more you can appreciate us because the Fortune 500 have armies of people like us so they don’t pay any taxes. You’re a much smaller business or individual. You don’t need an army, but you need to know these things.

And one of the ways I call it, I call it the magic business card. So you say, “Well, what’s a magic business card?” Magic business card is if I gave you a card that you could take to the IRS and save a million bucks, you’d take it to the IRS. But suppose I took that magic business card. I put it in the back of a dump truck. Started up with a big shovel and then dumped a lot of business cards in your office. What would you do? Say, “What a mess this is. Just clear this up and get it out of here.” You’d be throwing out the magic business cards. There’s all these things hidden in the internal revenue code. The Fortune 500 knows where they are. We are going to show you where they are and that’s the planning part.

Now, we don’t just say these are a bunch of good ideas and go and do it somehow. We actually implement it for you. How do we do that? Well, the way we do that is go ahead and say, All right. Supposed we determine the best thing for you is to set up an S Corp. We set up an S Corp for you. Or supposedly say, we want to go ahead and implement a pension. We implement the pension. And there’s a lot of things that come through with this. For example, when we’re doing the planning, a lot of times other areas of planning come up. What’s other areas? Other areas of planning can be things like estate planning. Another area, financial planning. And we have departments with department heads and we say, “You know what? It’s not just income tax planning we look at, there’s other things as well.”

And the other thing too, is surprises might be nice for a Christmas present, but it’s not nice when you get a surprise on your taxes. So one of the things we like to do is regularly meet with our clients, at least quarterly, sometimes even monthly. And we go over things and we say, “Look, here’s our projections, here’s the actual. Take a look at it.” And then we make adjustments. And then we go ahead and do the actual tax preparation. But most people, when they think of taxes, they focus on the tax preparation and that’s fine. Think of the tax preparation like the Olympics. That’s where you actually go and run around the track. But the tax planning is the four years of training in the gym so you can run around the track. That is another way to think of the difference between tax planning and tax return preparation.

Now, we review a tremendous number of different strategies and the strategies may interact with each other. For example, one of the strategies is increasing your depreciation with something called cost segregation analysis. That’s where we take advantage of the time value of money, just like the banks do and take a benefit now. Obviously you would rather have a benefit now than many years from now and you say, “Okay, that’s good. But what about other benefits?” So let’s assume that we have a rental… You’re a landlord and we have a rental building, or you use the building in your business. If we go ahead and increase the depreciation, even though you may have… And what you really want, the best thing is a positive cash flow. That means you take in more in cash than you spend, but you actually wipe out the profit with a paper loss.

You don’t write a check to depreciation, but the bottom line is it deducts from your gross revenue same as if you had written the check. So now you say, “Well, all right. I can go ahead and save money because this building, even though I had a positive cash flow with the use of depreciation, I don’t have to pay any taxes.” But you say, “But wait a minute. When somebody gives me something nice, what do I say?” Most people say, thank you. An attorney says more. I want more. If we go ahead and we have a paper loss from that building, remember we’re not losing money, we’re making a profit. Can we use that loss against our other income, like profits from a business, wages, dividends interest? The general answer is no under Internal Revenue Code Section 469 called the Passive Activity Loss rules, but there’s exceptions to it.

And one of the exceptions is real estate professional. And if you’re married, only one spouse has to qualify. Then what happens, we can take those paper losses and offset them against our profits, wages, dividends, and interests. And that’s an example of how we don’t just look at these tax planning strategies by themselves. We take a look at them in conjunction with other things. Suppose we have this situation. Suppose we say, “You know, I am planning my estate and I’d like to live in my house for the rest of my life. But when I finally go to my reward, I would like my house to go to the charity of my choice.” And let’s assume for easy numbers, let’s assume that we have a million dollars equity in our house. Well, if you do that, that’s nice, but there’s no income tax benefit. So here’s where a tax planning strategy coupled with an estate planning strategy would work together hand in hand.

We set up a CRT, Charitable Remainder Trust. Physically, everything is the same. You live in your house for the rest of your life. If you live another 300 years, you stay in the house another 300 years. But eventually when you go to your reward, the charity then gets the house. But the difference between the first way where there’s no income tax deduction, and this way is theoretically, we do a calculation, an actuarial calculation to determine what you’ve kept and that’s called a life estate. And what you’ve given up, called a remainder interest. Let’s assume in my example, the remainder interest is 700. That’s the theoretical amount the charity is going to get. What happens here is now you have a $700,000 tax deduction. “You say that’s great Steve. But I don’t make 700,000 a year.” That’s okay. We can carry it forward for five years and do partial interest.

And again, with this type of seminar, we can’t get too much into the details. But the idea is physically we’re doing the same thing we wanted to do. We wanted to live in the house for the rest of our life and then have the charity of our choice take the house. The difference here is that doing it this way, using the tax planning, we get an enormous tax deduction. Isn’t it nice? You get what you wanted to do anyway, but you pay so much less in taxes. That is one of many, many, many things that we can do. Again, I have to control myself, because I’d love to go out and tell you these other things, but then I would take up your whole day and you might have something else you need to do.

So we take a look at what are some of the categories. Well, we take a look at all the various deductions that are going to affect you. The entity design. That’s important because under the Tax Cuts and Jobs Act, we lost our ability to deduct our state taxes on our Federal Return in excess of $10,000. That really hurt. For a lot of people that was their biggest deduction. However, almost half the states have workarounds, where if you do something like set up an S Corp, make an election, deduct the state taxes on the corporate level, then you can go ahead and deduct an unlimited amount of state taxes on your Federal Return. You say, “You know Steve, that’s great for all the business owners, but I’m not a business owner.” It works for landlords. It works for investors. It works for a lot of people.

Retirement is an enormous area. There’s over 20 different types of pension plans. And the bottom line is with the retirement accounts, there’s four main benefits. One, you save taxes. Most people at that point say, “Sign me up, Steve.” But also the earnings themselves are not taxed while the money’s in the plan. Obviously, if you’re not getting taxed, your balance is going to grow a lot faster and a lot bigger than if you are being taxed. Next benefit, cashflow. Cashflow is most things you have to go ahead and write the check by December 31st year one to deduct it from year one. Not so with most of the pensions. With most of the pensions, you get the right to check up to the time of filing the return plus extension. In English, suppose you’ve set up an S Corp and you say, “Okay, the time to file that with extension is September 15th, year two.” You have until September 15th year two, to put the money into the retirement account, yet you still get to deduct it in year one.

So if you’re listening to this webinar after the year has ended, don’t say, “Oh, wow is me. I guess I’ll have to wait till next year.” You don’t, there’s still things that can be done. And there’s all kinds of things that we can do with insurance. International taxes affects a lot of people. And then we have people moving capital gains strategies, lots and lots of things for us to do. And it’s individualized. So we also make a decision. Do we want to defer or accelerate income? That’s a lawyer’s answer. It depends. For example, if you’ve had a big capital gain, you may have some stocks or other things that you could sell at a loss. You can sell them it’s called loss harvesting. And then we go ahead and we can reduce or eliminate the capital gains. And then we can go ahead and buy them back, minding the wash sales rule, because we may have to wait 30 days.

Also, we can talk about opportunity zones, which gives you benefit. These will go on and on and on and on. And then as far as bunching deductions, what’s that’s all about? Is there some things that are more beneficial with certain ceilings to say, if they straddle over two years tax wise, you’re usually better off choosing to put them all in one year rather than straddle them over two. And we definitely want to max out our retirement accounts. This area in and of itself is a tremendous benefit. And there’s so many benefits.

And another beauty here is retirement accounts are safe. They have special protection under federal law. If you get sued, and unfortunately in our country, that happens a lot. If you get sued, what happens? The plaintiff can’t touch it. And although I hate to mention his name, OJ Simpson is the poster boy for this. Because as you know, he’s had a multimillion dollar judgment against him for many years. He’s not lost one penny of his pension. The bottom line here is this is an area where you make the decision. Would you prefer to pay less taxes or more taxes? And the if answer the is less taxes, you want to have a retirement account. And now what I’d like to do is turn the floor over to my friend and colleague, Cliff Capdevielle. Cliff, take it away.

Cliff Capdevielle:
Thanks Steve. So a lot of great ideas. Let’s get into a couple particulars. So one thing to look out for are your IRA distributions. If you are subject to those mandatory distributions because you are reaching age 72 this year, or if you reached 70 and a half last year, you do have to take those distributions. So part of what we do with tax planning is help you avoid potential penalties. And these can be really outrageous. So we make sure that you’re taking the required distributions.

For example, failing to take an IRA distribution and that’s required can result in a 50% excise tax if you can believe that. And we make sure that those distributions are on track and you’re not subject to any kind of penalties. Big issue, we get a lot of questions. Should we, should we not do a Roth IRA conversion? Well, we’ll crunch the numbers and let you know what the tax effect will be.

But in general, we’re going to look at a Roth conversion. If you’re going to be in the same or a higher tax bracket at the time of withdrawal, how does this work? Well, a Roth IRA conversion requires you to pay tax in the year of the conversion. And then if it stays in the account for at least five years, you begin withdrawals tax free. And that’s a great benefit if you’re going to be in a higher tax bracket, or if you want to leave the Roth to your kids or your grandkids. That’s a tax free legacy, potentially, after five years.

So what do you want to do here? There’s a little math involved, but what we’re going to do is help you figure out how to maximize your tax savings with a Roth IRA conversion. We max out your bracket in the year of the conversion, which means this. We will convert as much in a particular year that will not put you into a higher tax bracket. In other words, if you’re are in the 25% bracket, we’re going to max out your conversion up to the point that it would push you into the next bracket. We spread out the conversion over a series of years typically. So it does require a bit of planning, and we want to make sure that we look at that every year and make sure that we’ve minimized the potential tax on those conversions.

A lot of small businesses need help with planning. Steve and I have worked with thousands of businesses at this point. We’ve done over 100 employer retention tax credit claims. This is a big one for 2021. It allows employers to claim a credit that’s up to 70% of qualified wages per employee per quarter. So that’s a huge number for a lot of small businesses. They’re getting tremendous refunds. Steve, do you want to talk a little bit about the ERC and what you’ve seen in terms of tax savings? You’re muted Steve.

Steve Moskowitz:
Well, I guess if I stayed muted, I’d have to speak even louder. So the bottom line, this is really exciting guys. This is a government giveaway. This is a stimulus program for employers. The government gives you the money. They give you up to $33,000 per employee for 2020, through 2021. And what do you have to do to qualify? There’s a couple of things. One is you have to be either fully or partially closed, and where most people miss it is the partial closures. That’s why you really need to talk to us about that. With the restaurants for example. If they can be open 24/7 for delivery and takeout, but couldn’t use their dining rooms, they qualify. When they could use the dining rooms at 25%, they still qualify because they were 75% closed. The dentist, they weren’t allowed to use aerosols. They qualify. So the bottom line is there’s an awful lot of things that qualify.

There was a bakery that had a table and chair in there. So when you buy your donuts, if you didn’t want to take them out, you could sit down there. They weren’t allowed to use that table and chair. That qualified them. So that’s one way to qualify. And the other way is mathematically. Mathematically is if you are quarterly gross revenue in 2021 dropped by 20% or more as compared to the same period in 2019, you qualify. It’s 50% for 2020, but most people are looking at 2021 because 2021 is the big benefit. $28,000, as opposed to 2025. There’s all kinds of rules. This has changed and changed and changed. Every change has been more inclusive, more beneficial to tax payers. If you look at the IRS website, they fess up. They’re not up to date on the current law, but that’s okay, because all the changes have been for the better.

And this is free money. So for example, if you had 10 employees, you could get up to $330,000. If you had 20 employees, you get to 660,000. And again, this is not a loan. It’s a gift from the Federal Government. You don’t have to ask for forgiveness like with PPP. You don’t have to spend it in a certain way like PPP. You do whatever you want with it. The bottom line is the government is giving away all this free money and anybody that’s an employer should go ahead and take advantage of that. And even if you have a real small shop and you’re a corporation and a one person show, you may qualify as well. The bottom line is this is super powerful and we’ve had a couple of clients… I realize people’s facts, circumstances, and results can differ. To date, we’ve had two clients that are getting back almost 2 million bucks. A lot of the clients getting back hundreds of thousands.

But the bottom line is, whatever your number is, come and get your free money. And I could talk about this for quite a while but I want to get the floor back to Cliff.

Cliff Capdevielle:
Thanks Steve. Couple other ideas for businesses. And this is eligible for small businesses, as well large businesses. As Steve said, there’s a misconception that these big tax breaks are only available for the big businesses, for Amazon and Apple. Not true at all. All of these are available for small businesses and that’s… What Steve’s been doing for 35 years is making sure that small businesses take advantage of these tax breaks that are available to everybody, but not well known by small businesses.

Another example is net operating losses. So the Cares Act temporarily permitted NOLs occurred in 2018 through 2020 to be carried back for five years. A lot of people don’t realize that. They had a bad year in 2020. Now you can go back five years. And in any of those years, if you had a profit, you can use that NOL generated in 2020 and pick up a refund. So let’s look at that.

And the final one we want to talk about a little bit is a perfect example of a tax credit that almost everybody thinks is reserved for big businesses, high tech. The R&D tax credit is available to any business that has qualifying expenses. Those qualifying expenses are anything in the nature of novel or new techniques, procedures, medical doctors are able to use this credit. Other small businesses. We’ve seen dentists use this successfully. Steve, did you want to talk a little bit about the R&D tax credit?

Steve Moskowitz:
Sure. And what happens is this is dollar for dollar. So with a credit it’s different than deduction. So for example, if you have $100 deduction, you have avenue in a tax bracket of 30%, you save $30 in taxes. If you get a credit for over 100, you save 100 in taxes. And this is one of the other ones where we can come in after the year because you don’t have to spend any new money. We come in, we take a look at not only the current year, but three years back because we can amend. And we see is anything you’ve spent fit in this special category? And if it does, we can get you back money for the current year and three years back. The government is also very generous in this area. They write you a check even for trying. If you try and fail, the government writes you a check.

It doesn’t have to be new to the world. It’s new for you. It’s essentially it’s looking at innovation and an awful lot of clients will say there’s a process that you do here in the industry, but I did something to make it better. The government will write you checks for that. Again, this is all part of this government incentive. And it’s all part of the tax law. What we said is two parts, one to get money out of us. But the other one to encourage is to do certain things. This again is free money. You’re not spending an extra penny. We’re just taking a look at the money you’ve already spent and said, “Hey, this qualifies for this special benefit.” And I know we’re running out of time. So Cliff, I’m going to throw it back to you.

Cliff Capdevielle:
Thanks Steve. So one thing we’re looking at carefully is businesses who have changed their procedures or techniques due to COVID. Obvious example is medical doctors. Telemedicine really took off this year. One of the side effects of COVID is that a lot of docs had to change the way they do their work and they have introduced all kinds of new novel procedures and techniques. But the same is true for many types of businesses. It’s not just doctors and dentists. So Steve and I are looking at opportunities across the board for small businesses who have invented new techniques because of COVID. They’ve changed their procedures. They’re doing something new, novel way. Let’s look at that. Let’s see if that’s eligible for the R&D tax credit.

Liz Prehn:
Thanks Cliff. I had a couple questions come in. Do you have a moment for questions?

Steve Moskowitz:

Liz Prehn:
I’d like to invite everybody to chat your questions if you’d like. If they’re attorney-client sensitive, be mindful of that and we can talk offline. One question here is what do I need to give you so you can review my tax plan? Can we do a quick and dirty review to see if it’s worth me pursuing? How much time does this take?

Steve Moskowitz:
Absolutely. And what we do is we ask for your last three tax returns, but we can even do this from the last year only. You give us your last year’s tax return. You answer a few nosy questions and then we’ll come back to you and we’ll say, “We can save you money in categories X and Y and Z. And here’s how much money in each category.”

Liz Prehn:
Okay. And you talked about setting up some entities. How do I go about doing that or do you help me with that?

Steve Moskowitz:
We just do it for you.

Liz Prehn:
Okay. Thanks Steve.

Steve Moskowitz:
It was a pleasure.

Liz Prehn:
You should be receiving, audience, a offer for a tax review from us. If you don’t receive the offer, or if you have any questions, feel free to reach out to us offline at and we thank you for attending. Thank you. Bye bye.