LTB Webinar #1: 5 Tax Moves to Make Before Year s End

Welcome to the very first LTB webinar. This is the first of a series of free webinars with different business experts, community leaders, and successful entrepreneurs to talk about valuable topics that will help you learn, grow, and lead your business. Today's topic is a great one and just in the right time. This topic is five tax moves to make before year end. My guest today is Yseph Klene. Yseph is a senior manager in Roth and Co.'s New York office. He helps business owners with effective tax structures and tax transaction planning. He's a key member of the firm's tax compliance consulting division. Ysef has nearly two decades of experience in assisting clients in tax compliance and reporting. Before I hand over the webinar to Yseph, I want to note that we'll we will aim for a brief Q&A at the end of presentation. So, if you have any questions that come up while we're doing this webinar, be sure to enter them in the chat box during the webinar. We'll get to as many questions as we could. Without further ado, hello Ysef. Welcome to the LTB webinar. Good afternoon, uh, Manny. Uh, it's a pleasure to speak to you today. And let me start with the title um two. Uh my goal today is to give um the listeners at least uh five packs ideas that they can still implement before year end. And um I hope uh to uh to be successful in this goal. I think the first tip of the day which is uh we should start is is that you should all take out a pen and write a p on a piece of paper one to five and on the first tip you should write the name of your CPA tax advisor write down the name and the phone number um without and and in order to start with the actual uh tax steps let's move to the next slide Um the the goal of of this seminar is to to explain how even with whatever uh your business situation is, how much money you earned so far in in the first 11 and a half months of the year, they still need the opportunities to to lower your tax rate um on on the income that you already earned by properly uh taking advantage of tax laws and the way the rules and so Yseph Ysef I think it's important uh we should start off with the webinar with uh first of all congratulation um for everybody that has an issue that they need to defer their taxes that means they had a successful year so they starting off with having a successful year and now we're looking for ideas how to defer um from paying all these taxes another important thing I think it's worthwhile mentioning before we jump into the actual tactics is those are all conversation pieces uh which you should have with your tax planner, tax advisor slcpa, accountant where we could take those ideas and there's so many other ideas but those are common ideas which you you put together where you feel people are not paying enough attention to when it comes to a year's end and a third thing is um I think it's important for people to think out of the box when you're seeing something on the uh Joseph explaining um think how that pertains to your business. It might not be the exact scenario what where he's mentioning but think out of the box and see how you could take that uh scenario and how it's going to affect your business and your tax uh financial um goals and so on and so forth. So to continue and expand on that um I would just want to some general tax concepts when it either introduce them quickly review them. One is that the tax rate is what the the US tax rate federal tax rate is progressive which means as you earn more income each additional dollar is taxed at a higher rate. So for 2015, if you're married filing jointly and you have ordinary income, if it's more than $411,500, you're taxed each additional dollar at 35%. And if it's over $439,000, each additional dollar is taxed at 39.6%. So that's why we many times we find that it's important to be able to um either defer income or increase expenses let's say 2015 because you don't want to have each additional dollar of income tax at such a high rate and pushing it over put deferring income to 2016 or later gets you a lower tax bracket. So, not only do you have more time to pay your tax, though, you actually end up paying less tax when the tax is owed. In addition, there are some ways to spend money in a tax efficient manner so you get a deduction or tax deduction in the manner that you can use it instead of not being able to use it at all. And we will further explain some of these ideas as we go along. Um, to uh talk to go to go to the topic of how of what what is deferring income for the next year is for many uh small business owners who are on the cash basis um taxpayers which means that they report income on their tax return based on how much cash they earned during the year and how and expenses on how much they spent this year. Um there are various opportunities of deferring income to the next year and it may be as some some of them one suggestion which we have is is that you just simply don't collect the money. You don't you don't uh you you when you call your clients to pay you you ask them to send the check January 1. You can still ask them for the money, but by pushing off instead of getting the check this week, wait two weeks for the money, you're giving up use of two weeks of the money, but you get the check in the mail on the first week of January, that's when you earn the income. And um it's as simple as that. Um you just need to be careful that once you receive the check in the mail, it know it's already your income whether or not you deposited in the bank. So that is one way to make sure that you don't have that you have less income in 2015 without basically without giving up giving up significant use of the money because you're going to get it in two weeks. So you also just to to confirm the listeners are understand what you're saying is basically the bottom line if you are on a cash basis and that's something um if people on the phone are not familiar um that's something they should speak to their accountant there are companies that are set up as cash basis and there are companies that are set up as acral basis and the real one number one difference is are you going to be reporting based on when the money came in or at the time of service rendered. And if you you you did the service this year, so you did a sale, but you did not receive the money, that's that's what you're referring to as cash races. That means that ultimately you don't have to show it on this year's income. Is that correct? Yes. Okay. Um that's one one idea which we come across. Um and and just to note um th this the reason why I'm suggesting this is because for for for from a running your business perspective, we're just pushing picking up the income literally for two week getting the use of the money for two weeks. So that's not a big a big cost of the way of doing business for most people than and and a big tax savings. Another idea is installment sales. What do we mean mean by installment sales is um there there at various times of the business cycle you you you end up you're selling either a business or other business assets and and it's capital gain not ordinary income not for services or goods sold at the regular cause of business. Maybe you're selling um um the warehouse where your business is located because you're moving to another location. maybe other other types of assets that when you sell them, you're going to have capital gain. And especially if you're in if you're looking to close a deal quickly before year end because that's when when you're required to do closing. Installment sale means that instead of getting all the money at closing, you're going to split up the benefits between how much you get at at closing maybe today, tomorrow, or Friday, and how much money you're going to collect at the beginning of January. What this does is again, you're giving up use of your money, let's say, uh 10% down payment to 90% in two weeks. So, you're giving up the use of 90% of your money for two weeks. And for tax purposes, you just split the capital gain between 2015, 10% of your total gain in 2015 and 90% in 2016. So what that does, two things. One is um depending on what other income you have during the year, you may end up in a lower tax bracket. and and and step two, if your income is earned in the beginning of 2016, you you're you file it on your tax return in an additional 12 plus months from that. So, you pushed off paying and reporting the tax and then you had the additional 12 months to do tax planning and and further see how you could actually reduce the actual tax bill on on that additional income. Another idea which you have again it applies to people who have sold either stock or their businesses for capital gain or other real estate at a capital gain is to is to review what other capital assets you have which means assets that you sell you to have gain or loss. And sometimes the you know especially with brokerage accounts or other types of assets you may have invest people in business may have um um assets that are no longer worth anything but they paid for it and then you're still not selling them because maybe you still hope it's going to turn around. Maybe there's some sentimental attachment to it because you invested so much money. But if from a business perspective, it really doesn't pay to hold on to it because you're it's never going to turn around. Maybe it's a p piece of real estate in the biggest uh slum neighborhood in in the whole area. It is beneficial to sell loss property in the year that you have large capital gains because that for tax purposes act. If you have capital losses, if the loss is going to happen in a year, in a year or two when you really have to give up the property and you don't have capital gains, you're not the losses against income only $3,000 a year on your individual tax return. So, another strategy which we come across is is trying to time if you're already stuck with capital gains. Maybe installment sale doesn't work anymore. Maybe you would you had the gain sale of gain property in the beginning of the year. No longer can push it off. Another thing that you can still do is is by carefully reviewing what others it what other assets you own is to sell the lost property or actually to abandon it to walk away from it. And in based on your specific situation, you'll be able to net the gains and the losses and reduce your overall tax bill. an additional. Yes. Ning. Yes. So, so that's usually netting capital gains and losses is usually related to to properties or assets of the company versus services and sales. That is correct. It's more in the range of either real estate owned or actual business property owned making machinery and equipment that's just outdated but hasn't you know that but still you still didn't fully depreciate it um and or or you know and if you have a brokerage account you know stocks and bonds got it. um bad debt expense which you come across as um you start ask for business bad debt expense you know like accounts receivable which is really um you know it's a little bit you know goes back to you know uh reviewing just like in the first bullet point we said you're not you're going to um you know u reduce the collection of actual cash on your money at the same time there are people who owe you money and they just haven't been paying and they will not be able to pay you. So a good review of accounts receivable will also show how much actually of the money is collectible. Money that's not collectible from the accounts receivable cycle is about that expenses and deduction and that also needs to be you know that is a good time at the end of the year to review that carefully to see what you're entitled to. In addition to that um various people um business and entrepreneurs and owners at points in time will lend money to people that they that they have business connections to but it's not accounts receivable. It's not because you provided services or sold them goods. You lend money to other people who are starting out in a similar business. You lend money to to someone maybe who was a business in the same area because you want more business traffic. you want to want to there's different reasons why a a business owner would lend money to people not part of the tax receivable cycle and sometime you know hopefully we we all want to get paid back when we lend money uh but not that always is not that's not always possible at some point in time you're lending money and you're not going to be paid back a careful review of these let's call it notes receivable that you have can can can can show that if you're really not we can show that you're really not going to get paid back. You can take an extra loss in the current tax year because they're no longer collectible and and for and for tax purposes. This also means that we have to make sure that you you actually demanded the money and and put in effort to collect the money. Ysef um um so this is something very interesting for me myself. I think a lot of people on the on the phone uh this is something new when you're saying about the collect collect collectible notes and loans is that related to you on on the personal side or the money has to come out of the business side meaning say could I just have a check and loan that I gave for a person and I I I came up with the conclusion this year that it's a bad app. So the answer is the that the bad debt part has nothing to do with where you wrote the check from because if if you're definitely not getting paid back, it's an expense. The only difference is if from from a tax perspective, is it a business bad debt or a non-b businessiness bad debt? Non- business bad debt means that we treat it like a short-term capital loss, which means that if I don't have any other capital gains, it's only $3,000 a year. If I have capital gains, it reduces capital gains. And the typical the highest tax rate for capital gains is 20% or 23 4.8% depending on how much money. If it's a business bad debt, it reduces my ordinary income. and the highest tax bracket, every dollar of that lost money gives me a tax deduction against 39.6%. So, so there's it's a two-step process. First, it's making sure that you're not getting paid back, that you're entitled to the loss under the tax rules. The second step is, is it a business debt or not? So to answer that question is it it it's it the IRS calls this a facts and circumstances test. So while you don't have to have the check the note coming out of your business account, it's it's definitely better. It's all the more important that your the reason why you lent the money to this person who's not paying you back now was for a business reason. Mhm. And on on the note of bad depth expenses, what proof do you need to have in order the IRS should feel that this is a non-collectible debt? What what what did you do to collect the money? Did you send them notice and demand letters? Have you been calling? Did you retain an attorney for collection? Did you sue in court or or an arbitration, otherwise known as DS? Did you did you retain an attorney and the attorney did a did a a credit search or some other asset search and he sends you back a letter essentially? I I can sue this person, but there's no assets to collect from. So, it's not worth it to go through a lawsuit. Okay, those are the things that you need to do. Again, these are general ideas, but there are actual steps that need to be done. And in the year that you determine it's not collectible, that's the year that you take the loss or deduction. Got it. So, let's move on to number two. Okay. Uh again, let's go to the cash basis taxpayers. Um, carefully review your expenses. You know, if you still have bills, they may or may not be due. Again, don't don't it's not it's not efficient to pay bills for the next six months until December, but you can accelerate your your bills that are due in the beginning of the year, let's say in January, and pay them in December, maybe. Um, you know, and and that's how you could increase your deductions for the tax. Another another tip that we have is that if you don't have cash in the bank, you can use your credit card. Even if you're a cash basis taxpayer, using your credit card to be able to pay your your business expenses and then of course you have the the the grace period on a credit card to pay to pay uh next month, but your all your expenses are treated as if you paid them during December. That is that is a that is a simple and beautiful way to increase your deductions in 2015. And this So you're saying So you're saying that those are expenses from 2015 without my credit card in the bank, I don't have the money to pay it. So I won't have the deduction. But if I put it on my credit card and the statement is within the the year of 2015, the deduction is happening in 2015. Yes. Perfect. Wow. Now let let's just draw another idea which which is again is not so much um increasing your expenses but spending smartly. Um, many of us, especially with Obamacare, have health insurance. But even with health insurance, you have various medical expenses, whether it's co-pays on insurance, co-pays for the doctor visit, um, visits that are medical expenses that are not covered um, by insurance, but need to be paid. And also, you're not reimbursed from, let's say, your flexible spending account or health savings account. You have your own out-of- pocket medical expenses. Under the IRS rules, those medical expenses are deductible with what we call itemized deductions. And the first 10% of your medical expenses, 10% of what we call AGI adjusted gross income. That's the dollar amount at the bottom of page one of your tax return of your 1040. The the first 10% is not deductible. So for someone who earns, you know, after we did all our tax ideas and reduce taxable income and we got you down to make a rounded number of $100,000 of HI, the first $10,000 of medical expenses are not deductible. So that means that someone's average expenses that are out of pocket is $7,500 a year. they're not, you know, with braces, glasses, and other stuff that's not covered on medical plans, then they they'll never get a a tax benefit of the money they're spending on medical expenses. But if you have towards the end of the year you pre you pay for services or you actually use medical services during 2015 a little bit stuff that you really would do in 2016, you can be above the $10,000 limit in our example and actually get a tax benefit from your expenses. So maybe if every January is when you buy the new gl eyeglasses. So you order eyeglasses in January. don't wait till January, beginning of the year, buy the new glasses in in December so that your your 2015 expenses go up. Um, it may it may be, you know, pay in full for the braces instead of paying over a two, three year payment plan you paid in full during 2015, so on and so forth. If you have expenses, instead of spreading them out, you try to bunch them into one tax year. I mean, it it's not tax efficient to actually, you know, have put all your kids put put all the children into have, you know, go to the dentist and have all the kids put into braces and they don't need them. But instead of spreading out um when when you get the braces, you try to do them uh you try to do a more than one in the same year, you can get you can get an actual tax benefit from from the itemized deductions because you're spending more than 10% of that AGI number in one year. And again, if you don't have the money to pay for it, you can charge a credit card. Cool. Okay, this is the complete from a tax from a finance perspective. This is complete the opposite of what a finance person will tell you to go on further itemize the charitable donations. Okay, I think I think this this is the fun part. Okay, here's the fun part. The fun part is let's just make just introduce a new concept. We we all have mo most of us have our own ideas of how to give saddaka soda sodaka quote what you want and that is that is very fine and that is not what we're so much going to discuss now because not everything that is sedoka from from our p from our personal perspective will be a charitable deduction for your tax return. So first you have to itemize on your tax return. Second, it also for example, you can never give donations to to an individual. We can never give donations to an organization with a requirement that they pass on the money to an individual. That's more direct. So what we have to do is learn how to give to Daka in a way that we also get a charitable donation and also be able to take the deduction. So you get a proper receipt, proper acknowledgement. So here are here are some tips on how to properly take advantage of the tax deduction for a mitzvah that we're already doing. So the the easiest part is is you have whatever budget or what whatever your commitments are to give charity and you've probably done that all year is using cash check or credit card and that show keeps on showing up on some of our slides. the word credit card actually give donations to the local tax exempt organizations like you sponsor Shivas um and and other uh nonprofits. In addition to that there's other charity and there's other donations you can make and before and and one of one of the things which save us money is if you have appreciated property and what we call appreciated property for as accountants we mean we mean something that you own that if you were to sell it you would have capital gain. this to sell to give you an example. If you bought corporate stock for a dollar and it's now worth $100. If you were to sell that stock because you hold it for more than a year, you have $99 of capital gain. If you want to give a $100 to charity, um you can you can contribute the stock to charity directly to charity and you have $100 of deduction and you do not have to pick up any of the capital gain on your income tax return. So you may you may you save you're saving taxes twice because otherwise if the IRS would not have this rule you'd end up either having to write out a check from your bank account or have to sell the stock pay tax on it and have uh $80 or less left in the bank to be able to give to charity. So, so, so if you have real estate, stocks, or that's for the most part the most popular assets that are we call appreciated long-term capital gain property, and you contribute that to charity, you get a fair market value of the of deduction, and that saves you a lot of tax. there are a lot of rules and exceptions and requirements and and please refer to the first bullet point which was to to to call your accountant for the exact details. Um another place that we see where people spend money spend on charity on suka and are may probably not getting a deduction is volunteer expenses. The most volunteer expenses means that if I volunteer my time for an organization while uh my time may be valuable I don't get deduction for my time but either my expenses that I spend or some other rate which I'll explain in a minute is allowed to be used as a deduction. So if I volunteer for Hakala and I know that I spent that I have a clear record of all the gas and toll money I spent on my volunteer calls I can with the proper receipt from the organization I can get a deduction for charity. While that's also good, there's another way to also benefit if I don't have all the detailed expenses of how I spent each time I made on tele. If I know how many miles I I drove for them during Joe for the volunteer organization during the year, I can deduct 14 cents per mile. Now, while 14 cents per mile may not look like a lot of money, it still is. It's two things. First of all, it's a deduction you're entitled to. And second, depending on how many miles you drive for volunteer purposes, that money can add up. And this is something that you can still do this year because you can you can uh you know, based on how you responded to calls, various organizations are pretty good at keeping track and and record of of who's doing what, when, and where. and they should still be able to give you a a they be able to help you uh with with producing a a detailed list of how many how many holes runs or jobs you did for that. So Ysef on on on this particular bullet point I think this is probably something that a lot of people don't even know this exists. Is this at the end of the day is is it only the mileage because you mentioned uh gas tolls mean to say and is this something that the volunteer work needs to be with the car or if you need to let's say you volunteer in a hospital which is a 20 minute 20 minute drive or cross the bridge type of volunteer. Could you physically know you know document every single trip you did to to get to that uh station to volunteer? Yes, the answer is yes. So to be fair, I sort of modify my suggestions for things that are at least practical to implement by the end of the year. Um, if if you were telling me that you want to track all, you know, all your expenses, it's probably a lot easier if I told you January 1 to start keeping track of every pull you made and every time you filled up on gas, if you made a longer longer drive and every time, you know, on easy pass, every time you pass the bridge and put the duct actual expenses, there's a lot more record keeping involved that you would have to track your actual expenses. Um maybe you did an overnight trip and you had to stop in a hotel. Okay, let's just take an example. If you did a test to a drive to to drive someone to for an organization to volunteer to drive to Philadelphia or Boston or somewhere to to a doctor's appointment to a hospital and back. So now you have gas, you have tolls, you have you stopped for a kosher meal, you stopped in a motel to to sleep. there there are additional expenses that you you can you can uh you can deduct as a charitable donation but there's a lot more paperwork involved and documenting and when I prepared these slides I was concerned that it's a little more difficult to do that at at them you know some you know for for the whole year okay so so let's move on let's move on to to whom to donate. I think that's an important uh part to whom to donate. The IRS has has created a set of rule because before we said what I'm going to donate to whom I can donate also is how much can I get a deduction during the year. So to take one example, if I earn $100,000 this year and I contribute $100,000 to charity, my taxable income is not zero. my taxable income is not zero. The IRS has a complicated uh um um schedule that they use to figure out how much you can give income. But the the the summary the summary calculation is that if I give cash, checks or credit card or publicly traded stock to a public charity, I can give up to 50% of my what we called before AGI to to to the charity and still get a deduction this year. Any extra money that's not used as a deduction is carried forward for five years. If if um other types of appreciated property of public charity, I only can use that for up to 30% of HR. And and there are a couple other exceptions also. So, for example, if we're going to give money to a private foundation, then even giving a check is only 30%. of my AGI. So when does this make a difference? If I'm giving larger amounts of charity compared to my total taxable income. If my goal is to give 10 or 20% of my taxable income to charity in any one single year, it's not the the charity I give to the type of charity is not going to make a difference. But what they find we find for a practical perspective what does make the difference is that uh that if you your year end tax plan you find that for tax purposes you earned more money than you expected from a budgeting perspective and now at the end of the tax year you want to maximize your tax deduction for charity but you you may or may not have decided who should get that money. So, for example, as part of all this planning or ideas that you come up with, you you figure out you figure out with your accountant that this year I need to give between now and year end another $100,000 to charity. So, the simplest solution would be as you write out $100,000 check to your favorite charity. that is not always practical. So there are other solutions in order to be able to get a tax deduction in this year and still have time to decide who gets the $100,000 whether as one lump sum or as multiple smaller amounts of money. There are two popular options. One option is what's called the donor advised fund. This is a type of public charity that has a government recognized donor advised fund. um of division where you give the charity to to you give the check to to the dollar advice fund and under tax treat it as a donation today. You still have the right to advise this charity on who they how they should spend this $100,000. You can decide in January, February, March, you decide next year or at another further time how that money should be spent. And the way you do that is is by advising the charity that you gave the money in December of 2015 how to spend the money because of the way the tax is set up. You get the receipt in 2015, you get the deduction in 2015 and you have time to make a decision at a later point in time. Mhm. I I think another another good advantage of donor advice funds is uh for those people that we need to have a you know each organization needs to have be a 501c3 um approved recognized organization. So a lot of organizations uh a lot of people that you want to help might not be in that category. So if you give it to a donor advice fund um you usually u are able to do certain things where you could advise them as well which charities you want they should they should give the funds. Correct. Well, what would happen is I I'd like to reward what you said, M. Sure. is one of the responsibilities of a taxpayer when you're giving charity is to make sure that you you give it to an approved charity like you said, you get a receipt, an acknowledgement uh in time and so on. You know, some organizations are better at this and some are are, you know, are not as good as they can be. By giving the money to the donor advice fund, you get one receipt for that $100,000 and and your deduction and everything is documented at a later point in time. In other words, now the deadline is is two less than, you know, a couple less than two weeks to find a crap organization that sponsors that type of charitable good work that you're looking to sponsor. next year when you're going to go sit down and and find who you want to sponsor and give the advice. Um the advice would the the donor advice fund is set up in such a way. They're required to make sure that when they give the money away that they're giving it to to an acceptable charity. So when you sit down and and you decide who to sponsor, you you're you're automatically going to have the responsibility is going to be shared with the donor advice fund for making sure that that and um charitable work is is is is the check the receipt is written out to an organization that can receive the donation. So for example, if you want to do feed the poor, you know, so so maybe you know there there are all kinds of ways to find out how to feed the poor. So it's maybe it may be harder to find who is going to uh which organization should get your $100,000 between now and the end of the year. But if you do if you have time during 2016 to decide that um all that figuring out that it's a prop organization will happen from the donor device. Perfect. Uh let's move on a little because u we are getting a lot of questions for Q&A. So I want to leave some time for the Q&A. 30 seconds on the private foundations. Private foundations are taxexempt organizations that people set up on their own. Um it has its own own requirements. It file its own tax return. Many times you'll see uh the so and so family foundation. Those are typically five foundations. They file a return every year. You you give you give the money to private foundation and every year you'll give at least 5% of the fair market value of what's in the foundation for charity. Those are also very useful but they also have responsibilities filing the return every year paying 2% tax on the net investment income and the returns are publicly disclosed. Depending on your specific situation, you should choose uh what works for you. Retirement accounts. Um there are different types of plans that work for different kinds of people and I'm just going to give you some of them that that we come across. The easiest plan for any person who who earns money is to set up is an IRA account. IRA account is you can can uh put in um $5,500 a year if you're less than 50 and the deadline for put for setting up and putting the first time setting up the account is April 15 of 2016 and you can that's when you have to pay the money and and that is that is probably dep for most people that's the easiest small amount you want to go for saving more money. There are various types of 401k plans um with different deadlines for their setup. I'm going to give one example. If you're self-employed or you're a one employee, one employee, you're an entrepreneur, you're you're a consultant, you're a salesman, you have your own company. If we call it a solo 401k, sometimes it's called a SE 401k. You set up the plan before year end and you need to fund the plan. You have to actually pay the money by the time you you the return is due. Your tax return is due with extensions. So, you have time to actually make the payment. you know the action item before you're into setting up the plan but the payment needs to be made you know even by let's say April 15 if you don't go on extension what's the benefit from such type of plan that if your compensation for purposes of 401k is at $265,000 you can save 53,000 20% of that money you can put in the retirement plan and it's it's all and it's and it reduces is your taxable income balance to balance. What's the benefit? If you're saving money, this is tax advantage savings. You get a deduction now. The money the money grow tax free. And if it's Hashem, when you reach retirement age, 65, 75, you can take out the money that all the all the money in the account can be taken out, you know, depending on how much money you take out every year. and and you're taxed at your ordinary income rate at that point in time. Correct. So, so, so just to to ruate on on the retirement accounts is even if you're young in age, but if you're saving money regardless, you're putting away in different uh formats money, you should speak to your tax advisor. Um what what are ways that you could put away money where it's 100% tax deductible? That is that the essence of the of the these bullets? Yeah. So, this is Yes. And there are various other pension plans which which either which either can accomplish the same thing or even with larger savings. Perfect. Okay. Um and again typically speaking if you're you know depending on which type of pension plan you have you defin you have to set up the plan before year end and you have time until the date of the return to actually fund the plan or write out the check to the pension plan. So so um that there's a benefit to the saving the money. So for examp I don't want to get into too more details because that's more of a pension consultants area of expertise they define benefit plans contribution plans and so on. Perfect. Let's go to the next slide please. Okay. Once once we've done all the different tax planning ideas and we've reduced your tax to the as much as we could. We we we've reduced your ordinary income to be as low as possible and reduced your capital gains. We we've maximized all your expenses. We you've spent all the money on the braces and the medical expenses and you've already given you've already written out the check to to charity for the year. You may still find that you owe estimated taxes at at the end of the year. where so take us to explain what what do we we mean with estimated taxes. Um the way the federal government and the state in our case New York State um wants wants us to pay our taxes is is you pay during the year quarterly estimates based on how much you earn that year. Um and then when you file your tax return if you still owe money you pay more. If you if you don't go if you owe less money you can get a refund. So, paying your estate taxes during the year is an itemized deduction on your federal tax return. Your fourth quarter estimated taxes are due January 15. So, the last thing that we usually do as tax advisors at as part of tax planning is is to suggest that you pay you you consider paying your fourth quarter payment two weeks early. Instead of paying a January 15, pay it at the end of December. What do you gain? You would have if you pay you pay quarterly estimates the fourth quarter estimate paid during the tax year and get more itemized deduction. So more itemized deduction, you have paid less taxes. So then now the second question which I'm sure most of you are asking. So why should we not pay the tax early? Because if you have too many itemized too much itemized deductions, you may find that the IRS wants to tax you what's called AMT, alternative minimum tax. Instead of paying tax on reg taxable income of up to 39%, alternative minimum tax counts your taxes differently and charges you 28%. Now, depending on your specific tax situation, you may find that you're you're subject to alternative and on tax. For the most part, that means that the IRS says you have to recalculate your income without certain deductions. Take globalized depreciation expense. You do not take state and local tax as an itemized deduction and other miscellaneous adjustments. Those are typically the two biggest items. And what happens is if you're going to be in in if you're going to be subject to alternative minimum tax in 2015, you do not get a benefit of paying your state income tax two weeks early. Therefore, therefore, after we've after you've done all the tax planning at hand, you still may have one more thing that you could that you could benefit from. pay your taxes earlier than you're supposed to. If you're not going to get a bigger deduction in 2015 for paying your taxes early, they just pay the taxes on time on January 15th. Mhm. Interesting. Okay. It's a little it's a little more of an advanced uh idea because uh you know, we're introducing the concept of two different kinds of taxes on your 1040. Perfect. Um, thank you so much Joseph for sharing your valuable information with our listeners. Um, we have many many questions uh that came up. Um, we'll try to get to as many as we could. If you are on the phone um or watching live and you would you have any tax questions, feel free to send them even we won't get to answer all those questions. The but we might uh we might do a follow-up as well. Um as we all know um tax question tax um the topic of taxes is not very exciting um topic but we all want to know the answers. We want to pay as little as possible. Um, and as Joseph started off with, the first thing on the list is these are all concepts and it's important that every single person that has a business or files taxes and has a relationship with an accountant make sure to have that conversation one-on-one with those accountants because they need to get understanding what's going on besides just the transactions that they're seeing at QuickBooks or any other system you're using. It's important they have to know what are you doing with your free time and volunteering and charity and so on and so forth so they could do the best tax planning for you. So let's get to some questions. Uh before we we start while I decide which question to start off with, I would want to ask a a favor. I'm going to push out a poll on the screen which this will give us some understanding how relevant the this topic was and how we should continue on other topics that we can be doing free webinars. if you could take a moment and just vote one of the three answers that would be that would be very helpful for us. So, so we'll leave it up on the screen for for a few minutes and and then we'll go to some questions. So, um Yseph, I I think we should be brief on those questions so we'll get as many as possible and if the question needs a longer answer, just tell us it needs a longer answer and that the person asking the question uh will need to advise, you know, speak to his accountant, his or her accountant. So the first question is you mentioned about cash basis. Is there a legal um requirement from the IRS when you need to be a cash basis versus a cruel basis? Um yes um depending on which type of business you're in and how much your gross proceeds are per year. Um there's there are different standards. If you're a service business, if you're not a service business, if you're an inventory business or or a manufacturing business, each one of these categories are a different set of rules. Typically speaking, like within within the kind the the limits of this uh of the of the seminar, it depends on the size, how much how much how large your gross receipts are for the for the year or past several years, and what type of business you're in. Um and and to to to take just a simplified example, a large manufacturer will always have to be acrual basis. Cool. Um any deduction that you're eligible this year, if you decide not to take the deduction this year and you want to take it next year, is that something that the IRS allows you to do? Um to clarify, if you give if you give the charitable contribution this year, then it's a deduction for this year and you can't adjust claim reported on next year's tax return. You can or you can't cannot you cannot. Okay. One is um either reported on this year's tax return and rely on the carryover rules. What you do is is you don't write out the check. Um, depending on the exact situation, there may be other ways to to defer, for example, the charitable contribution. But this the short answer is if you actually give the money this year as a as a contribution, you cannot you cannot you're not allowed to just report it on next year's return. Got it. Um, just a quick quick uh moment on the poll. We have 58 people voted and there is a couple of them a couple of you that did not vote. We want to close out the poll. So if you did not vote, please take the moment to vote. It is a tremendous valuable for us so we could um know how to prepare information for future webinars. Uh the next question actually three of three people asked along the same lines. So I'll phrase it in my own words is yeshiva tuition. Which part of yeshiva tuition is taxdeductible? Could we use business accounts to pay tuition? Could we pay tuition for our friends kids and make that taxdeductible and so on and so forth? I I guess it's not the first time you're getting asked that question, so just shed some light. One, one, tuition is not tax deductible. Two, if you pay tuition for directly to the to the yeshiva for someone else is the only the only benefit you get is that instead that it is not treated as a gift to the person. So, if I paid my friend's tuition, my friend's children's tuition and if I would give the money to my friend and he would pay the tuition, it would be considered a gift. And more than $14,000 a year could be subject to gift tax. If I pay the directly for my friend's medical expenses, it's not considered a gift. But paying paying money giving money for tuition is is not considered a tax deduction for charity. It's not a charable tax. Sure. Another very important I think a question that came up uh that somebody just sent in which uh probably people could phrase it also differently. I think we discussed it before the webinar about salespeople. So the question he's asking, if someone gives me a check for the commission with a date in December 15, but I only deposited it January 16, can I claim that income in 2016 and not in 2015? Meaning, so what I guess the question is if when you get a commission check, is it relevant when I deposit it as an income or when I the the check was written out to? It's the the answer is neither of the two. It's relevant when you receive the check. relevant date when the check came to you in the mail. When did that is the date? That is the date that counts when you receive the income. Uhhuh. Is that the reason? Because that company which gives you the commission will file a 1099 in this year for that income. Correct. It has to match up. That's not the tax reason. That's a practical reason why you want to match. The the real reason is is because what the IRS calls us is constructive receipt doctrine. It means that when you just if you have the check in your hand and just it's your income. Just because you didn't deposit in the bank doesn't mean that it's not your income. And another question somebody sent which to be honest with you I don't even know what it is but I guess you do. Um could you talk a little bit about charitable lee trusts? Um I could but I think it's of our time budget. Okay. So I guess uh we'll follow up on that. But in concept, what is that? That is it's another way of of giving charity for an um just more advanced method of giving charity. It's it's it's a depending on how you use the charitable trust or sometimes called a clat. Um it's a way of giving money to a trust. And what you're saying is um you're you're using the trust rules and the charitable rules to give money now to a trust and ex and there's a certain amount of that money is treated as being given to charity and whatever money is left over in the trust after the trust runs actually is distributed to usually the children or grandchildren of the person who gave the money to the trust. um the the they work when used properly and they do it. It's just a little more than I expected. Another question. I think I know the answer, but I'll let you answer the question. Is um if I donate my time, can I build my hourly rate for a tax deduction? No. Okay. They I guess they wanted to hear it from an accountant. CPA is what you what you can do is again is you care if you document your expenses. Sure. And first you you can't you there's two things you you cannot under current law bill for your time don't deduct your billing time in other words your billable rate for your time. While there has been um some talk by some politicians and in Congress to to pass some modified law to allow that to encourage people to volunteer, it's not part of the current law. And just also note uh you're you're not picking up that billable time in your income either. But but that's uh that wasn't the question. Correct. Uh we have we have time for another three questions and they're coming in in the masses. Um, quick question as far as used items. If I donate used items from my house to a shelter or any other organization, could I take that value of those used items and get a receipt for donation? Yes, you can get a char donation. Typically speaking, you need to contribute household items that you know, clothing, pots and pans and chairs and tables and furniture. It must be in good usable condition. Okay. Okay. And the follow-up question to that that just came in looks like by the same um person asking, "How do I document charity when I give the merchandise? Do I report the cost of goods or the price I sell it for?" Okay. Um um Okay. The answer is that one, you're going to you're going to want to make sure you get a receipt from the organization for what you contributed. free shopping bags of clothing or a descriptive. They they should give you be giving you a receipt for the items you contributed. They're not supposed to give you a dollar amount on the receipt. Um depending on what you're giving and how much you think it's worth, it is very good would be a good practice to take some pictures. So almost everybody has a phone that takes pictures today. take pictures of what you're contributing depending depending on the value of if they're giving you more than $500 in value. There's more information if you need to disclose on your tax return this form 8283 with instructions and and depending on the on on the price of what you're taking as a deduction, you'll need to be able to disclose what you contributed, how much you paid for it when you bought it, how you valued it. um items above a certain value need to be appraised. Meaning that if you're let's say giving an expensive painting to charity or real estate or a car to charity, you if it's worth more than a certain amount of money, you're going to actually have to pay for someone to value the the goods and you're going to have to report that on the tax return. Okay. I'll ask you another the similar questions came in. I I I assume it's also a longer conversation, but in a nutshell, if you want to address it, is life insurance tax deductible? No. Under no circumstances or the different policies under very limited circumstances. For example, group life insurance that is paid by your employer is the first 50,000 of coverage is tax-free. In other words, when we get into the the the topic of fringe benefits, what type of items your employer or the boss can pay for and not have to include it on your paycheck of the employee, there are certain items that are considered non-t taxable fringe benefits. So, the first 50,000 of coverage is taxfree. Anything above that needs to be uh included on your paycheck. So, it's no longer it's not really deductible, especially if you own your own business because you're not really helped if you have a deduction on the business and you have to include it in your W2. Got it. So, let's end with the last uh the last question which uh actually came in now again as well. Uh I think that's an important question. So, we discussed a couple of ideas how you could save taxes um 2015. Why is it better to push off taxes from 2015 to 2016 if you're expecting to having a smashing success in 2016 to have even a better year? Okay, so first of all, it is possible depending on your facts that it is not beneficial to push open. You may find that based on the different rates you expect to be taxable because I said before we we said it very shortly the different tax brackets it's possible that it's more beneficial for you to increase your income in 2015 because you want less income in 2016. So don't feel lost. You can use the same strategies in the reverse. Just turn around, you know, put a mirror in front of your list. You turn around ideas. Second, even if you're going to be in the even though you're going to have a smashing success, there are other nuances. First of all, you get another 12 months to pay your taxes. So, if you get another 12 months to pay your taxes, you have use of that tax money, time value of money, also worth for those of you who are very good entrepreneurs and having access to that tax money, 40% of the tax the tax for another 12 months is worth it. In addition, even if you're in the highest tax bracket, depending on exactly how much money you're in and what itemized deductions you have, there are other tax rules which is beyond the scope of the discussion which may further increase your tax bill or reduce your deductions. So even if you're already in the highest tax bracket, earning too much money in one year can still have you an effect on your tax return. That's that's great. Um we are hitting the hour mark. I want to value people's time and we disc we set out that it's going to be an hour um webinar. I really really appreciate it Joseph. I thank you very much for sharing this information. I know myself I learned a lot and I I see from the polls that many people here are enjoyed it and learned a lot. Um I advise all of you to just take this as concepts and then speak to your own accountants and see what's best for you and all these uh items that were discussed. For those who want to find out more about Yseph and Roth and company, visit the website at rococcopa.com. Once again, thank you Ysef. Thank you everybody for joining us for this webinar. We actually, you know, we're not participating to have this this this large of audience uh join us for the first webinar. If you did not catch all the details, we will send out the recording u for the people that were on the webinar from this webinar and be sure to look out uh for future webinars. Once again, you are listening to ALTB webinar. Be sure to look out for upcoming webinars. Until next time, onward and upward. Continue to have a great day. Thank you, Ysef. Welcome. All the best.