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Tax Planning Strategies (2019) Year-End Tax Planning Strategies - YouTube
Channel: Toby Mathis Esq. | Tax & Asset Protection
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- Hey guys, Toby Mathis from
Anderson Business Advisors,
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and today we're going to talk
about year end tax planning.
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For the last 20 or so years,
I've been in the field
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of taxation and really tax planning,
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and there's a huge difference
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between tax preparation and tax planning.
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A lot of people go to a tax preparer
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and they don't realize
that that individual
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is not actually a tax planner.
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In other words, they're
reacting to what occurred
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in the previous year, they're
putting it in the right
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columns and everything
and that's about it.
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A planner is, during the year
they're going to be looking
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at what's going on and
trying to use their crystal
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ball a little bit to say
hey, what's the best way
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for us to land?
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They want flexibility as a result,
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and they understand that
there's things that can be done
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even after the tax year
end so long as we set
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things up correctly to still have options.
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And let me give you an example.
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If you are an individual
and you want to make
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a contribution to your IRA,
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you have all the way up until
you file your tax return.
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Now there are phaseouts
depending on your income
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as to whether you can
still take a deduction
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by putting money into a traditional IRA.
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That does not exist on other
types of retirement plans
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like 401Ks, profit sharing
plans, et cetera, DB plans,
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those types of things.
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We can literally go up
until the entity files
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its tax return that is sponsoring that.
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And that brings us to kind
of one of our first issues,
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is this idea of income shifting.
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When we're doing year end tax planning,
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a good planner, make you
smiley face right there,
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understands that there's different places
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the money can land from a tex standpoint.
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If you're just to 1040, maybe
we have an IRA to play with.
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Maybe we phase out, so we
have this little world.
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Maybe we can give some money to a charity
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or something where it's going
to go as an itemized deduction.
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But we're fairly limited,
so maybe we have a 501 C3
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where we can give some money.
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But we're fairly limited
in our individual world.
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Once we start looking beyond that,
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maybe we go into the entity
world where we may say hey,
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we have a corporation,
let's say it's an S corp
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where we're running an active business
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and we're separating it out.
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Now that S corp may have
a qualified retirement
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plan or 401K.
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Maybe you even set up your own non-profit
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where you can actually
control how the funds
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are actually used.
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In addition, you may have your own C corp
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that may be managing another LLC,
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may be managing all of these.
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And now we have how many
different tax returns
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where things can land?
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We have you, we still have the IRA,
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we now have a, we still have the 501 C3,
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we have the QRP, we have the S corp,
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we have the C corp.
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This guy, generally
speaking, is just a conduit.
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It's going to flow onto one of us.
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It's not going to necessary
be a separate taxable entity,
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but we start looking at these things.
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Now if you have children,
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let's put our kids out here,
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and they say hey I want
to work as well dad,
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or hey how do I get to
work for these entities?
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We may have another one
where we can move money
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into another tax bracket.
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That's what tax planning is about,
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it's like where do we want it to land
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and what's the implication
if it lands there?
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So if I have a bunch of rental properties
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and I do nothing else, let's say this is
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real estate rent, if I do nothing else,
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it's going to end up on my 1040.
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If I pay the C corporation
a management fee,
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then a portion of it is going
to end up on the corporate
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return, and a portion of it
is going to roll down to me.
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That C corp may have better
tax treatment than I do
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especially if I'm in
the highest tax bracket,
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that C corp may allow me
to write off everything
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or things that I can't
do as an individual,
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but also it's a flat 21%.
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This S corp flows down to me
if I let it have the profits,
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if I leave the profits in there.
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But I can avoid the social security tax,
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also known as FICA,
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if I pay myself
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a salary and then the profits,
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I can avoid this, which you
think is small, it's 15.3%.
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I can help avoid that.
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I can avoid all taxes by
deferring income into my QRP,
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I can actually take, for
both me and a spouse,
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up to 18,500 of the first dollars I make
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go straight into the plan for each of us,
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if we're over 50 it's 24,000.
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I can put a whole bunch
of money, excuse me, 24,5,
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24,500, I can put a bunch
of money into there.
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If I have too much money sitting in here
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and it gets towards the end of the year,
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now I have some choices.
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I can just put money into my 501 C3.
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And you'd be shocked at
what qualifies for a 501 C3.
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For example, low to
moderate income housing
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is a charitable activity,
residential assisted living,
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charitable activity.
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There's lot of things out
there, transitional housing,
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providing housing for
vets, all those things
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could literally be considered
a charitable activity.
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Now I can write off up to 60%
of my adjusted gross income
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by putting assets into that 501 C3.
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It could be cash or
assets, fair market value
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if it's like real estate.
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So I start looking say hey I have choices,
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I can still use that IRA
if I'm not phased out
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over a dollar amount.
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But now I actually can
control how much is hitting me
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so I can actually do that.
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My kids can do their own IRA,
my kids can do their own QRP,
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my kids can also contribute to my 501 C3
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and I start having choices.
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Then we get to the end of the year,
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and you say alright Toby.
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This is all neat and dandy,
but what if I'm in February
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or March, what can I do?
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Well, I don't have to
close this thing out.
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From a tax perspective,
it can make contributions
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on my behalf off of what I paid,
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it's not my deferment
but it's not my match.
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I can make that match up
until it files its tax return.
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In an S corp, that's going
to be with an extension,
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September 15th.
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For an individual, I can
be making a contribution
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into my IRA up until I file a tax return.
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April 15th.
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So I still have choices,
depending on what other
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type of retirement plans.
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If I have a defined benefit,
if I have other plans,
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I can be making contributions
even after the year's end,
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I can still be doing these things.
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Everything else is pretty
much I have to do the
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transfer during the year.
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I actually have to know
before December 31st,
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but even after the year I
still have plenty of time
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to do some more planning.
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Hey, I don't have enough
money to put into my 401K,
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this stinks, what do I do?
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It comes to January,
February, March, April,
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June, July, and you say hey,
I have the extra money now,
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can I make a contribution?
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Yes, you can do your
match all the way up until
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you file that tax return,
one of the reasons
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why we like to do extensions around here.
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I could actually be making a contribution
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in September, of let's say
it's 2019 for the tax year,
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my tax year of 2018, so I could
still be lowering my taxes.
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That is how we do year end tax planning.
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I have to know what's
out there, I have to have
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just about everything set
up, I have to have everything
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other than my IRA.
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I have to have everything
set up during the tax year.
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So quite often what you'll see is somebody
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putting a plan in place,
trying to put some money in it
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right before the end of the
year, knowing that they'll
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have some extra leeway
in the following year,
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but it's always better to
be prepared ahead of time,
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so hopefully you're
setting these things up
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in anticipation of that as you're growing.
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But that is tax planning to a T,
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is deciding which bucket it would be best
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to have it land in, making
sure that it's reasonable
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to have it land there,
and then setting things up
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and making sure that the
reality backs that plan up
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so that the money is going
where it needs to go.
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And that, again, there's
a legal justification
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that everything's reasonable,
I'm taking a reasonable
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salary so I can contribute to a QRP,
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the QRP is already in place,
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I'm making a contribution
to it, then the employer's
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making a contribution when it can.
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I'm making sure that if I'm using a 501 C3
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that it's already been
filed, that it's got
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its exemption letter and everything else,
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but I'm doing all these things proactively
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and then I'm using them during the year.
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The best time to do tax planning is before
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it's too late, which means, realistically,
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October, November, December
is when you should really
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be doing your year end tax planning.
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It makes sense depending
on how much you're making,
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how big your tax bill is,
to do at least a little bit
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of tax planning all throughout the year
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so you're not put underneath the gun.
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But at a minimum, year end
tax planning looks like this.
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Hope this helps.
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