Pondering today’s current economy and the likelihood that capital gains and income tax rates will increase next year ignites fear and confusion for countless numbers of Americans. For many taxpayers, the future appears to be downright frightful, resulting in a new wave of terror that strikes their hearts. They may even take an impaired view and see only one result when they read the letters I…R… and S. Have you ever noticed that the words “The” and “IRS” when coupled together spells “THEIRS!”?
The reality, though, is that those who view the current circumstances from this perspective are only victimizing themselves. The trick in maintaining sanity during this time of economic and tax upheaval is to forget about what you cannot control and focus on those things you can. The fact is you can manage your taxes and most likely win out in the end.
Solving Tax Problems and Gaining Greater Benefit
To illustrate, concerns about capital gains and other taxes may be troublesome. You may have owned an apartment building for several years and now would like to sell, relax and enjoy the equity and income benefits your hard work has earned you. Your CPA, however, has reported that you would be obligated to pay substantial capital gains taxes if you sold your property. What do many property owners do when they get this news? Unfortunately, they do nothing, except remind themselves of what their accountant told them: “Nothing can be done but to pay the taxes.” Right? WRONG!
Before you list your property for sale, it is important for you to learn what tax planning alternatives are available to meet your specific needs. If you search them out, you will discover that tax law does offer some pretty great solutions. You may, for example, be able to defer the taxes for up to 30 years or eliminate them entirely. If your mortgage to be paid off is greater than what your basis is for the property, you’ll learn that the taxes for “debt relief” can be solved. And at close of escrow, you may find that it is possible to enjoy greater income than what you had by owning the property you sold. But you will never know unless you take charge of your circumstances and learn your options. You must become proactive and find out the right solutions for you. Here is what one real estate investor experienced:
Troubled about her real estate portfolio valued at $800,000, this 54-year old lady wanted to sell the properties, replace the income she received from the real estate and reduce her income taxes. She was stunned to learn, however, that, according to her CPA, she would be obligated to pay more than $200,000 in capital gains and other taxes if she sold her properties and little, if anything, could be done to lower her income taxes. Discouraged, she mentioned her concerns to a friend who suggested that she seek a second opinion diagnosis of her circumstances by a qualified tax planning advisor. She did this and was delighted to discover that her financial condition was far different that what her CPA had thought:
1. Rather than paying $200,000 in taxes when she sold her properties, she would pay no taxes at all.
2. Her income would significantly increase above what she was receiving by owning the properties.
3. Instead of paying excessive income taxes, she would receive an immediate refund of taxes that she unknowingly overpaid; and,
4. She discovered other tax-saving opportunities that she could take advantage of about which her CPA was unfamiliar.
How could her CPA be so wrong? As is true of many accountants, he was never trained in the discipline of tax planning. In fact, according to CPAs with whom I have spoken, candidates for the Certified Public Accountant designation are not required to take tax planning courses to earn this title–and most do not bother doing so. Consequently, although they can become very skilled in identifying tax problems, few of these professionals acquire the experience and know how to solve them. They can be viewed as being “financial historians” who take what a client has done after-the-fact, filter that information through the required tax codes and generate, hopefully, an accurate tax return. This is great accounting but it is not tax planning. You are always better served when you meld together the advice of a trained tax planning professional with that of your CPA or accountant.
If you want to find the most appropriate resolution to your tax concerns, it is essential that you first learn what your true tax problem is and then search out the most viable options available to eliminate, defer or reduce the taxes for the year of sale. After you identify potential solutions and understand how each can be tailored to your specific circumstances to meet your objectives, the last step before implementation is to validate them under tax law through independent tax and legal authority. Following this approach will prepare you to be better informed on how best to approach the sale of your property and maximize your profit and income at close of escrow. Once this is done, you can confidently move forward to sell and then enjoy the benefits of the plan you implemented.
Finding effective tax remedies can be more easily achieved by following the advice of an experienced tax planning specialist who will guide you through a simple step-by-step process that works. Your tax-planning advisor facilitates the tax solutions; tax attorneys and your CPA or accountant jointly validate the solution you choose and its structure; and your real estate professional guides the sale of the property. It is a synergistic team effort that is focused on benefiting you in the most effective ways possible.
Whatever the new tax laws might be, we all should prepare ourselves to take full advantage of them. How? By plotting out a common-sense approach to tax planning through which we can:
1. Gain the foresight needed to confidently pay less in personal income taxes; and,
2. Significantly reduce, defer or eliminate the capital gains, depreciation recapture and other potential taxes you would otherwise be obligated to pay when you sell your appreciated real estate or other assets.
Here is the Good News
Taxes can dramatically cut away at any chance for you to successfully meet your financial goals and objectives. It makes no difference how old you are, if you are working or now retired. If you earn enough money or want to sell appreciated assets such as real estate, you will probably be obligated to pay taxes. The good news is you have choices.
We have all learned from childhood that it is prudent to get a second opinion if we are diagnosed with a serious illness. Wouldn’t you agree that paying more in taxes than you are legally required is a serious threat to your financial health? If you have appreciated real estate or other assets that you would like to sell but are concerned about paying taxes, doesn’t it make sense for you to learn what options are available to you to solve them? If you do, you will find out that you, too, have choices that can help achieve your dreams in spite of a wavering economy and changing tax law.