What legal steps you can take to reduce your taxes?

[Coronita]

[quote=luchabee]I am mostly passing on information from advisors I have heard on the radio (so check with a competent tax and legal advisor, if interested, like Rich), but variable annuities do have a place for some very high-income earners, who have maxed out their contributions to qualified retirement plans. And yes, they are complicated with big commissions for the advisor, no doubt. However, the tax-deferral is what is sought in these cases and you will have to pay to get it.

I’m sure Rich would be the one to talk to on these insurance planning issues. Of course, anyone should talk to a very competent and experienced tax advisor, if they are making this kind of money.

Charitable trusts are more for older folks (though they can make deferred payments later on), who have long-term capital assets and would like to sell them for retirement income.

The charitable trust allows them to sell any capital asset tax-free, even real estate, stocks, etc. (They will pay taxes on future income payments, but the trust can grow tax-free.) The person funding the trust will then select a payout rate of say 7% to 15% per year on the full value of the asset without any CG taxes being paid.

The donors then have to have at least 10% of the asset value go to the charity after their lives, but they will get an immediate deduction for this gift they will be making years down the road (not bad).

They are flexible tools in terms of passing income to children and have estate tax savings, too, if applicable. Also, the assets don’t have to be that large (maybe a nice second home?)so a regular Joe can save on taxes and make an impressive gift to the church, hospital, community center, etc. He might even get a building named after him, as well. Any estate planning firm, comprehensive financial advisor, or large charity can help with setting them up.

One limiting feature right now, of course, is that some of the significant benefit is that you don’t have to pay CG taxes initially. As a result, given declines in real estate and stocks, most of these assets must have been obtained many years ago to have a lot of appreciation. So, we are talking about older people mostly. On the other hand, especially for seniors who are looking to leave a legacy to charity and possibly their kids, a trust can be an ideal way to accomplish a lot of goals. [/quote]

Thanks for the info. A couple of years ago, when we grinded through the numbers, it seemed for us at leastbuying a separate termed life insurance + tucking the money away post tax was on par with the VAR plans, particularly since the VAR’s had really big fees to the insurance co….The other drawback was that the VAR plans seemed to have very limited investment choices in terms of funds, and if there was a self directed component, the trading commissions were pretty significant. I guess it didn’t make sense for us because we weren’t rich enough. And frankly, given how the equities markets turned out, it was probably a good thing we didn’t do a VAR at the time, because again I believe the VARs we looked at were heavily biased toward stock/mutual fund investing. However, talking to various financial planners about VARs, they seemed to confirm what you say about folks who are wealthy and need a tax haven.

The other irony was back then, we were deciding between MetLife and AIG…Good thing we picked MetLife, in retrospect 🙂

[Coronita]

[quote=FormerSanDiegan][quote=flu][quote=FormerSanDiegan]The #1 legal tax break is write-off of interest of your first mortgage. Of course, getting that requires you to leverage real estate which has been a losing proposition the last few years.

[/quote]

Unfortunately, this itemized deduction I believe also starts getting reduced above certain income levels…

Also, there is a point in which you end up paying AMT….and some itemized deductions won’t count toward AMT (property tax and income tax deductions aren’t part of AMT calculation, for instance).

Ironically, experimenting with my tax software, I think mortgage interest payments are still deductions when computing AMT…..
[/quote]

Yes, mortgage interest is still deductible under AMT. Property tax and state income tax are not deductible under AMT, but remember there is a large exemption under AMT, so the extent that this impacts someone will depend on their income and total deductions.

Yes, deduction phase outs do start occurring at higher income levels, but these tend to have a smaller impact than AMT for most normal people (making less than 300K)

There seems to be a sweet spot for optimal use of mortgage deduction while falling just below AMT and not impacted by phase outs. Punch in a joint income of 225-250K or so, assume mortgage of 700K-850K into your tax software and see what happens.
[/quote]

I don’t know what exactly it is, but I get hit with AMT every year…and as you indicated it’s a hit much more so than the mortgage deduction phase out (….well,at least until Obama changes the rules to the mortgage interest deduction that 🙁 )

…Part of the problem probably is from the fact that my property tax bill is a non trivial amount, and as an itemized deduction, makes a nice deduction that doesn’t count in the AMT calculations.

*edit*
I think my effective federal tax rate ends up being around 15.8% each year (state is about 7% i think- not done with this year’s taxes and most likely will file an extension).

* Back to the original poster’s question. The other thing was (at least under the Bush plan), a good portion of my income was from dividend income, which under Bush was 15%….Not exactly tax “exempt”, but better than paying oh, 20..25%+ on W2 income or waiting for long term cap gains rates….
That will change for some people under Obama, so those days are probably numbered…And that involved (heresy) buying sin stocks that paid good dividends (Phillip Morris, Altria, ChevronTexaco, etc)…Dividends from MO, PM,CVX are 7.7%, 5.8%, 3.8%.

*Not investment advice: i suck at it, really.

[Coronita]

[quote=FormerSanDiegan][quote=flu][quote=FormerSanDiegan]The #1 legal tax break is write-off of interest of your first mortgage. Of course, getting that requires you to leverage real estate which has been a losing proposition the last few years.

[/quote]

Unfortunately, this itemized deduction I believe also starts getting reduced above certain income levels…

Also, there is a point in which you end up paying AMT….and some itemized deductions won’t count toward AMT (property tax and income tax deductions aren’t part of AMT calculation, for instance).

Ironically, experimenting with my tax software, I think mortgage interest payments are still deductions when computing AMT…..
[/quote]

Yes, mortgage interest is still deductible under AMT. Property tax and state income tax are not deductible under AMT, but remember there is a large exemption under AMT, so the extent that this impacts someone will depend on their income and total deductions.

Yes, deduction phase outs do start occurring at higher income levels, but these tend to have a smaller impact than AMT for most normal people (making less than 300K)

There seems to be a sweet spot for optimal use of mortgage deduction while falling just below AMT and not impacted by phase outs. Punch in a joint income of 225-250K or so, assume mortgage of 700K-850K into your tax software and see what happens.
[/quote]

I don’t know what exactly it is, but I get hit with AMT every year…and as you indicated it’s a hit much more so than the mortgage deduction phase out (….well,at least until Obama changes the rules to the mortgage interest deduction that 🙁 )

…Part of the problem probably is from the fact that my property tax bill is a non trivial amount, and as an itemized deduction, makes a nice deduction that doesn’t count in the AMT calculations.

*edit*
I think my effective federal tax rate ends up being around 15.8% each year (state is about 7% i think- not done with this year’s taxes and most likely will file an extension).

* Back to the original poster’s question. The other thing was (at least under the Bush plan), a good portion of my income was from dividend income, which under Bush was 15%….Not exactly tax “exempt”, but better than paying oh, 20..25%+ on W2 income or waiting for long term cap gains rates….
That will change for some people under Obama, so those days are probably numbered…And that involved (heresy) buying sin stocks that paid good dividends (Phillip Morris, Altria, ChevronTexaco, etc)…Dividends from MO, PM,CVX are 7.7%, 5.8%, 3.8%.

*Not investment advice: i suck at it, really.

[Coronita]

[quote=FormerSanDiegan][quote=flu][quote=FormerSanDiegan]The #1 legal tax break is write-off of interest of your first mortgage. Of course, getting that requires you to leverage real estate which has been a losing proposition the last few years.

[/quote]

Unfortunately, this itemized deduction I believe also starts getting reduced above certain income levels…

Also, there is a point in which you end up paying AMT….and some itemized deductions won’t count toward AMT (property tax and income tax deductions aren’t part of AMT calculation, for instance).

Ironically, experimenting with my tax software, I think mortgage interest payments are still deductions when computing AMT…..
[/quote]

Yes, mortgage interest is still deductible under AMT. Property tax and state income tax are not deductible under AMT, but remember there is a large exemption under AMT, so the extent that this impacts someone will depend on their income and total deductions.

Yes, deduction phase outs do start occurring at higher income levels, but these tend to have a smaller impact than AMT for most normal people (making less than 300K)

There seems to be a sweet spot for optimal use of mortgage deduction while falling just below AMT and not impacted by phase outs. Punch in a joint income of 225-250K or so, assume mortgage of 700K-850K into your tax software and see what happens.
[/quote]

I don’t know what exactly it is, but I get hit with AMT every year…and as you indicated it’s a hit much more so than the mortgage deduction phase out (….well,at least until Obama changes the rules to the mortgage interest deduction that 🙁 )

…Part of the problem probably is from the fact that my property tax bill is a non trivial amount, and as an itemized deduction, makes a nice deduction that doesn’t count in the AMT calculations.

*edit*
I think my effective federal tax rate ends up being around 15.8% each year (state is about 7% i think- not done with this year’s taxes and most likely will file an extension).

* Back to the original poster’s question. The other thing was (at least under the Bush plan), a good portion of my income was from dividend income, which under Bush was 15%….Not exactly tax “exempt”, but better than paying oh, 20..25%+ on W2 income or waiting for long term cap gains rates….
That will change for some people under Obama, so those days are probably numbered…And that involved (heresy) buying sin stocks that paid good dividends (Phillip Morris, Altria, ChevronTexaco, etc)…Dividends from MO, PM,CVX are 7.7%, 5.8%, 3.8%.

*Not investment advice: i suck at it, really.

[Coronita]

[quote=FormerSanDiegan][quote=flu][quote=FormerSanDiegan]The #1 legal tax break is write-off of interest of your first mortgage. Of course, getting that requires you to leverage real estate which has been a losing proposition the last few years.

[/quote]

Unfortunately, this itemized deduction I believe also starts getting reduced above certain income levels…

Also, there is a point in which you end up paying AMT….and some itemized deductions won’t count toward AMT (property tax and income tax deductions aren’t part of AMT calculation, for instance).

Ironically, experimenting with my tax software, I think mortgage interest payments are still deductions when computing AMT…..
[/quote]

Yes, mortgage interest is still deductible under AMT. Property tax and state income tax are not deductible under AMT, but remember there is a large exemption under AMT, so the extent that this impacts someone will depend on their income and total deductions.

Yes, deduction phase outs do start occurring at higher income levels, but these tend to have a smaller impact than AMT for most normal people (making less than 300K)

There seems to be a sweet spot for optimal use of mortgage deduction while falling just below AMT and not impacted by phase outs. Punch in a joint income of 225-250K or so, assume mortgage of 700K-850K into your tax software and see what happens.
[/quote]

I don’t know what exactly it is, but I get hit with AMT every year…and as you indicated it’s a hit much more so than the mortgage deduction phase out (….well,at least until Obama changes the rules to the mortgage interest deduction that 🙁 )

…Part of the problem probably is from the fact that my property tax bill is a non trivial amount, and as an itemized deduction, makes a nice deduction that doesn’t count in the AMT calculations.

*edit*
I think my effective federal tax rate ends up being around 15.8% each year (state is about 7% i think- not done with this year’s taxes and most likely will file an extension).

* Back to the original poster’s question. The other thing was (at least under the Bush plan), a good portion of my income was from dividend income, which under Bush was 15%….Not exactly tax “exempt”, but better than paying oh, 20..25%+ on W2 income or waiting for long term cap gains rates….
That will change for some people under Obama, so those days are probably numbered…And that involved (heresy) buying sin stocks that paid good dividends (Phillip Morris, Altria, ChevronTexaco, etc)…Dividends from MO, PM,CVX are 7.7%, 5.8%, 3.8%.

*Not investment advice: i suck at it, really.

[Coronita]

[quote=FormerSanDiegan][quote=flu][quote=FormerSanDiegan]The #1 legal tax break is write-off of interest of your first mortgage. Of course, getting that requires you to leverage real estate which has been a losing proposition the last few years.

[/quote]

Unfortunately, this itemized deduction I believe also starts getting reduced above certain income levels…

Also, there is a point in which you end up paying AMT….and some itemized deductions won’t count toward AMT (property tax and income tax deductions aren’t part of AMT calculation, for instance).

Ironically, experimenting with my tax software, I think mortgage interest payments are still deductions when computing AMT…..
[/quote]

Yes, mortgage interest is still deductible under AMT. Property tax and state income tax are not deductible under AMT, but remember there is a large exemption under AMT, so the extent that this impacts someone will depend on their income and total deductions.

Yes, deduction phase outs do start occurring at higher income levels, but these tend to have a smaller impact than AMT for most normal people (making less than 300K)

There seems to be a sweet spot for optimal use of mortgage deduction while falling just below AMT and not impacted by phase outs. Punch in a joint income of 225-250K or so, assume mortgage of 700K-850K into your tax software and see what happens.
[/quote]

I don’t know what exactly it is, but I get hit with AMT every year…and as you indicated it’s a hit much more so than the mortgage deduction phase out (….well,at least until Obama changes the rules to the mortgage interest deduction that 🙁 )

…Part of the problem probably is from the fact that my property tax bill is a non trivial amount, and as an itemized deduction, makes a nice deduction that doesn’t count in the AMT calculations.

*edit*
I think my effective federal tax rate ends up being around 15.8% each year (state is about 7% i think- not done with this year’s taxes and most likely will file an extension).

* Back to the original poster’s question. The other thing was (at least under the Bush plan), a good portion of my income was from dividend income, which under Bush was 15%….Not exactly tax “exempt”, but better than paying oh, 20..25%+ on W2 income or waiting for long term cap gains rates….
That will change for some people under Obama, so those days are probably numbered…And that involved (heresy) buying sin stocks that paid good dividends (Phillip Morris, Altria, ChevronTexaco, etc)…Dividends from MO, PM,CVX are 7.7%, 5.8%, 3.8%.

*Not investment advice: i suck at it, really.

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[temeculaguy]

Tax reward auto loan from the san diego county credit union! (or whatever cu that has them) If you have a car loan, make sure it’s deductable.

[temeculaguy]

Tax reward auto loan from the san diego county credit union! (or whatever cu that has them) If you have a car loan, make sure it’s deductable.

[temeculaguy]

Tax reward auto loan from the san diego county credit union! (or whatever cu that has them) If you have a car loan, make sure it’s deductable.

[temeculaguy]

Tax reward auto loan from the san diego county credit union! (or whatever cu that has them) If you have a car loan, make sure it’s deductable.

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