welcome back to the daily mastermind george wright the third here you are in for a treat today i'll tell you what today's episode is going to be massive massive value for you it's literally a master class on tax reduction from the guy scott estill a long-time partner and friend of the company he was the former prosecuting attorney or trial attorney for the irs a senior trial attorney 30 years experience helping businesses slash their taxes. He's been an author of five top tax books and all over the TV, radio, podcasts. But we decided just a couple of days ago, last minute, to do a webinar on tax reduction and some of the new Biden tax increases that may be coming. And we had a thousand people register almost immediately. This was a massive class with tons of value bombs. He's going to cover how to plan for tax increases in 2022, what's included in the stimulus bill that was just passed, and even tax reduction strategies. So without any further delay, here's Scott Estill. I hope you enjoy. What I'd like to do for the next 45 minutes to an hour or so is go over some of my thoughts as to what we should be doing this year for taxes in 2021, what we need to be looking at potentially for next year. I know we're barely into 2021 and I'm already talking about 22, but I think we have to look at both years in sort of connection with each other and formulate a game plan based on some of the things that I think are going to happen and some of the things that have already happened. And so, you know, with that in mind, and, you know, like Don mentioned, not everything that I'm going to talk about here applies to everybody, but it is sort of general tax strategies, but hopefully it'll give you some thoughts as to, hmm, these are some strategies that I need to be thinking about. Again, not only for this year, but for the following year as well. We have a lot of different tax changes and tax law changes, I guess, coming about from different places in the sense that, you know, back maybe six months ago or so, it doesn't seem quite that long ago, but the CARES Act came out and that was the initial stimulus act that came out again back in in 2020. And a further follow-up to that, a bunch of tax law changes came out in December, So just about a month or so ago with the December stimulus. On top of that, we're going to see additional CARES Act stimulus, whatever you want to call it. So this is not the end of the stimulus checks or the stimulus program by any stretch of the imagination. So we've got round one, we've got round two already underway here and in the books. but I think we're going to see round three coming up real soon and likely around four even at some point down the road. So Biden is talking about a, I think it's $1.9 trillion stimulus package. And whether he has the full support in Congress or not, we are going to get some additional changes. And with that are going to come some of the tax changes. So, you know, let's just take a look just real quick at some of the things that we need to be aware of for this year, you know, when we're going through it. This is round one of the economic stimulus payments. And if you didn't actually receive this, but you're entitled to get it, you didn't get it for whatever reason, you will be able to file for a credit when you file the tax return for last year. So sometime in, you know, say March, April, May, I think we're going to see a lot more people filing earlier than normal, just because of the amount of credits that are available, whether it was this round one here or the round two. Notice here, though, that, you know, the very last part, the amount of income here, or excuse me, the amount of the stimulus payment is not taxable income. So this has been something that's been a cause of confusion. I think out there I've gotten a lot of questions on different events when I've been speaking in the last month or so, unfortunately still virtually, but a lot of questions about, well, I got to pay tax on that. No, actually you don't need to pay tax. So on round one, we could get this $1,200 per person, double that for a married couple. Round two that just came out again about a month or so ago, drops it down. So now we're talking about $600 instead of $1,200. Including the children here, same phase out supply. So this is just a gross income. But again, this tax credit here, the $600 per family member. So if you have a husband, wife, and two kids, you could be getting a $2,400 credit. But on something like this, again, not taxable income. So as this slide shows, and this is going to be based on either 19 or 20, you can see up there. So obviously if your income was high in 19 but low in 20, when you file your 2020 tax return, you may kick in and qualify for these credits. So this purple color here was round one, and the yellow color is what we saw just passed again a few weeks ago. And you can qualify for both of these. So if I'm a single person and my adjusted gross income, let's say, was $60,000 in 2019, I'm going to be able to qualify for both of these amounts. And let's say that I received this one, but I never received my $600 check. I can now claim this on my tax return. So it's a question of, am I going to get this as an advanced credit, meaning I'm not going to get the check in the mail type of thing, the debit card or the automatic deposit into my bank account. And if not, and I qualify for it, again, make sure that you and your preparer are on the same page, that you understand exactly what it takes to be able to qualify for this credit because it could be substantial. Certainly if you're married and definitely if you have minor children under 17, could be a real big deal. So again, make sure that you and your preparer are on the same page here. I'm talking about gifts and I pulled these slides even from my last webinar that I did here for Don and Protect Wealth in that, you know, the end of the year I want to talk about income tax and and estate planning and what have you but we wanted to look at making annual gifts at the end of the year at the end of 2020. I also want to encourage you to look at making annual gifts early so for 2021 you can make the gifts now and so you don't have to wait to the end of the year or whatever. Realize that when you make these gifts that if as long as it's not more than 15 000 per person per year 30 000 for a married couple then can be given anybody that they want this amount of money nobody knows about this in the sense that it's not reported on any gift tax return or anything else now we want to document the gift but i like being able to use this gifting strategy early and especially in a year like this year where you know i don't have a clue really what's going to happen with taxes any more than anybody anybody else does um there's going to be tax changes yes to what degree uh to what severity to who's going to end up paying who's going to benefit you know we're just not terribly sure about all that right now but at least with the gifts we can we can make these gifts now so effective as of today i'm not talking about qualified tuition or medical expenses i'm just talking about making an outright gift the benefit here is that this also here at the very bottom removes the asset from your estate and also removes the appreciation on that asset from your estate as well what do i mean well let's say that you make a gift of fifteen thousand dollars and that $15,000 turns into the $20,000 at the end of the year, that $5,000 is never going to be taxed to you. It's going to be taxed to whoever receives the gift, presumably at a much lower tax rate. So again, it's something that I like to look at from the perspective of, if we know we're going to make the gift, now for sometimes we may not know until the end of the year, we may not know if we have the assets or to what extent, you know, which I get. But if we know we're going to make the gift, why not do it earlier and let the appreciation then accrue for the person who receives the gift? Also, too, this is certainly an intrafamily tax planning approach, but to me, it's a very proactive approach to the sense that we may have an estate tax exemption being reduced this year. And that is something that, you know, as part of the taxes, everybody's talking about income taxes or, you know, the corporate tax rate or the personal tax rate. But what we're not really looking at is what's the estate tax situation going to be. And in the event that the estate tax exemption has changed and reduced by getting rid of assets now, we're able to take a more proactive approach. But just looking at, you know, how does this gifting really work? Well, you know, it's very possible that you can gift the stock or a capital gains in this case to somebody that's in a 0% tax bracket. So, you know, in this example here, we have a $1,000 stock purchase. So back about 10 years ago, I make this purchase for a grand. It's now worth 11 grand. So if I go ahead and sell it myself, I'm going to pay taxes at somewhere between 15 and 23.8%. This does not include any state taxes. So whatever, my state of Colorado is going to hit me with another, say, 400 and some dollars worth of tax. The gifting option is what happens if instead of me selling it, I gift this stock and let's say in this case, my daughter would sell it. Given that she's in the 0% tax bracket for capital gains, she pays no tax. And so this is a situation where for the family, we can end up reducing our tax rate. In this case, eliminating a tax bill. And here's some of the, as far as the capital gains rates, just so you can see where we are this year. for the single files over here in the blue column here, this 0% rate applies. And this is, again, this is taxable income, but again, for the married couples, it's double that over here. So the 80,800 or 40,400. So if you have somebody that is making a relatively low amount of money by gifting this intra-family, you may be able to pay nothing. Or even if you're paying something, it may be 15% instead of this 20% plus the Obamacare surtax. So anyways, it's a proactive approach because again, we don't know what these numbers are going to be. We know that there's a sunset provision coming in so that if Congress does nothing, that in 2026, the estate tax exemption is going to go way down. That's going to be sliced in half or more so. It's very possible though, that for 22, 23, 24, 25, the current Congress could come up with some other number. So you see this number coming from 11.5, 11.7, you know, we'd look at something, you know, around, and apologize for my ugly numbers here, somewhere around 11.9. We would expect it to be going up 12 million, somewhere around there. But we don't know. And so I think what we need to look at here from an estate planning perspective is we don't know what the estate tax rate is going to be. We don't know what the exemption is going to be. And we don't know when we're going to die. And so when you put all that together let be proactive about it And that when the gifting comes in So all right up on the screen little text messages I hear from the government the good news is here is that this isn't exactly true but nobody really knows how much we know it's it's always a big mystery with the taxes anyways let's uh let's look at some of the other issues that we have as far as the changes go required minimum distributions. This is for those who are age 72 or older. These were eliminated for 2020. They have been reinstated for 21. I don't know if this is going to stay this way, but as of right now, you should plan on taking minimum distributions this year if you're required to do so. I would suggest also that you might want to consider taking these distributions anyways, even if you're not required to do so now and this i think would apply to anybody over age 59 and a half if you're under age 59 and a half you're going to run into penalties if you take money out we typically don't want to to do that but if you're over 59 and a half let's say you're retired and you're going to be you think you're going to be in higher tax brackets for the near future you could look at taking some money out of an IRA today because your tax rate is going to be lower today than what you think is going to happen in the future. In other words, you think taxes are going to go up either for you or for everybody or maybe both. So anyways, something to consider as far as timing options and do you want to take these distributions. As far as contributions go, So this is one of our rare, rare instances of retroactive tax planning. And I'll give you an example of how this works in a couple slides, but this is not a typo here in that you can continue to fund your SEP IRA right now for last tax year, for the last taxable year. So if you did not fund a SEP, let's say, for 2020, you can still do so and designate the contribution for 2020 and get the tax deduction for 2020. Likewise, you can do the 2021 as well, and you can do them both at this time. So it doesn't hurt if you're working with a tax professional, presumably a lot of you probably are, to get a really early draft of the tax return done, especially if you haven't fully funded a retirement plan for last year, to see would it be beneficial in some way if you were able to fund it now. Would you get a tax deduction? Would it help you to reduce your taxes for last year? Do you want to forget it for last year and look for this year? Let's take a look at the tax planning for both years since we can. Basically, 421, almost all the numbers stayed the same here. The SEP went up by a grand from 57 to 58,000. And that is the same as the 401k. So if you add up this 19,500 and the 38,500, you'll come back with this 58,000 as well. So 401ks and the SEPs went up a little bit, nothing on the SIMPLs or the IRAs as far as what you can fund. Now, I mentioned that you can fund some of these retroactively. For the 2021 year, for the year that we're in, if you want to do a simple retirement plan, and there's reasons why you may want this, especially if you, let's say, have a sideline business that's making a relatively small amount of money. It allows you to contribute a lot more to the plan. 401ks we have till the end of the year. An IRA, we could even contribute to it next year. But of course, the sooner we contribute to it, the sooner we're going to get the tax deferral. Or if it's a Roth, the sooner we're going to get the tax-free status. So again, while we can establish the plan late the sooner we do it the better so here's some retroactive tax planning so we go ahead i get my tax return let's say prepared next month sometime not that it means i'm going to file it but i get everything prepared and maybe i go as far as i can i may not you know i may not have a k1 or i may not have everything but um i get it pretty pretty close uh and my My preparer comes back and says, hey, man, you owe 2,500 bucks on your tax return. So I was like, all right, that's kind of what I was figuring. But he goes, look, you make a $10,000 contribution to your SEP, and we're able to now get your income down by 10 grand, and we're now able to zero out your tax liability. So my options are that I forget the SEP, and I pay 2,500 when I file the return, and I move on. or I fund the SEP for 10,000 bucks. Now I'm going to fund it for 10,000. Either way, I was going to be out this 2,500, right? I was going to owe it if I didn't fund the SEP. So, you know, whether you consider my investment 10 grand or 7,500, either way, I've got a pretty nice return on investment here. And then also remember that whatever happens with this 10 grand, when I put it into the account, that is all going to be tax deferred until the money is withdrawn. So what happens if I would put that, you know, into the next Apple, you know, or the next Google or something, and that 10 grand turns into 10 million? That money is never, ever going to be taxed until I pull it out. Okay. And so we're getting all of this tax deferral all along. So retroactive planning gives us the option to be able to look at our tax bill today and do something about it. You know, maybe contribute to the SEP. So anyways, throwing in a little Bill Murray here tonight. A little caddyshack for us here, for all the golfers and Bill Murray fans out there. but let's let's continue with the retirement plan stuff with the retirement plan distributions do we what do we do with it you know I mentioned you know you're over age 59 and a half let's say we have a low tax rate maybe we do we do consider taking a distribution this year especially if we think that next year I'm going to make a whole lot more money or I'm going to start selling rental properties and I'm not going to do a 1031 exchange or I'm not going to do my rental property transactions in a, let's say, a tax-deferred account. There's a lot of different reasons why I may want to tax something today to lock in the lower rate. Now, again, I'm not suggesting that everybody goes out, take all their distributions, sell all of your assets and get a really big tax bill, right? But we need to look at what is your income in 21 with what are the tax rates in 21 relative to what do we think the tax rates and your income are going to be in 2022? Now, Don and I at the beginning here, we were talking about, you know, do we think the tax, what are the tax laws, when are they going to change? We were assuming that, yeah, there's going to be some changes, but when are they going to take place? And I look back at the first year of the Trump presidency four years ago, and the tax deal, reducing taxes was a big part of the Trump platform that year. And even though the Senate and the House were both in the Republican control, it took until December of that year before the tax bill was passed, and it was not retroactive. So everything in 2017 became effective January 1st of 2018. And that's what I think we're going to see this year is that if there is a real big tax bill, similar to a real big overhaul of what Trump did back four years ago, if Biden, first of all, wants to do that, and second of all, is able to do it, I don't think that that's going to take place until sometime later this year with an effective date of January 1st of 2022. Now, that doesn't mean that I don't, I think that there will be changes this year that will be effective this year. But most of the time, we don't see tax law changes that are negative in other words that affect us in a negative way go retroactive now again there's no such thing as a certainty here with with taxes um yes you will pay taxes i guess that's a certainty but well what that'll be hard to stay um but we have to we have to consider different possibilities as far as where we're going to be on the income stream and where we project the taxes to be as well. All right, let's look at some of the other personal tax planning of 421. The charitable contributions for public charities, this is not private foundations, was raised last year from 60% to 100% of your adjusted gross income, meaning that you could effectively zero out your tax bill. You could have, you know, instead of taking 60% of your adjusted gross income as the maximum, it's now 100%. So with planning, you could pay no taxes in 2020. And, you know, if that's the way you were going in 2020, congratulations, you can do it again in 21. So the recent December bill extended this for one year, gives us another opportunity to greatly reduce our taxes through charitable giving. Let's see, health and dependent care rollovers typically are not permitted on these plans, but the December tax law is allowing us to roll over any of the unused amounts, and this is in any health care flex accounts and also dependent care flex accounts. So we can do that from last year to this, and then also from this year to 22. So lots of different options here. It's not a use it or lose it situation like it's been in years past. Again, I think giving us flexibility, who knows what's going to happen with COVID and what the next stimulus checks are going to be. So, you know, we're just going to have to, I guess, play it out. Okay. Looking now, capital gains. This is one of the possibilities on the Biden tax plan that gets very, very high. And I'll show you this in a few slides here. But we've got what are considered to be now historically low capital gains rates. And I don't see how, certainly they're not going to go down in 22. But I don't see how they're even going to stay the same. I think that the capital gains rates are going to be going up. And that's going to be both short-term and long-term. Short-term capital gains, I think you'll see an increase for those who make more than $400,000. That $400,000 of income seems to be the Biden tax plan, sort of that magic threshold number. I'm not sure really where it comes from other than it's the number I guess. And so I think if you're making more than that, you're going to see a tax increase certainly on the short-term gains and probably on the long-term capital gains. And when you get into a seven-figure income, you could see a considerable capital gain increase on the long-term rates. So we may want to look at some point this year locking in capital gains, whether that happens to be, you know, this guy over here that's paying 0% in these brackets, but maybe it's also a situation where you happen to be in this 15% bracket. So you're making somewhere between this 80 grand and 501,000. And you may say, well, you know, my income is, you know, could be over 400,000 or next year, this 15% tax rate could be 18% or it could be 20%. But I bet it not going to be lower than this 15 So I may want to go ahead and sell some of this stock or sell some of these assets So I could be in a situation where you know let say I sell some stock I can turn around and buy the stock right back. So there's no problem as far as that goes. But, you know, it might be something where I reset my basis to take advantage of the lower gain capital gains rates this year relative to what i think they're going to be next year all right uh standard deduction amounts um this is a an interesting part and this is down at the bottom here and that is that for both of these years for 2020 and 21 um you will you can also get an extra 300 or 600 amount if you're you're married filing a joint return um so you if if you take the standard deduction. So in 21, you can get this $25,100 plus another $600 on there. So, you know, again, you may want to look at bunching your deductions between 21 and 22. Granted, we just started 21, but still, it's something that you may want to look at as far as being able to plan to take advantage of and maximize the standard deduction. I mentioned the 100% rule on the charitable contributions, which obviously good news as far as what we need for planning purposes. This 7.5% rule for medical expenses, this rule has jumped back and forth from 7.5% to 10% to 7.5%. I can't ever figure out what year it is or what the amount is. the new law in December makes this 7.5% and makes this quote-unquote permanent. So as much as anything in taxes is permanent, it's 7.5% now. So again, bunching expenses. If you expect to have a lot of medical expenses this year and you're going to itemize, you're going to want to look towards the end of 2021 to bunch more expenses in there. So if you needed, let's say, prescription, eyeglasses, if you needed dental work, any sort of medical expenses that may be not an absolute necessity that you get them done right away. Something to look into as far as bunching up these deductions. Big one here, and this is one that I think we're going to see sooner rather than later as far as this highlighted part, this potential law change goes. I really think that we're going to get rid of this SALT tax limitation. And what this limitation is today is that if you add up all of your state and local income taxes and your property taxes, so your real estate taxes on your personal residence, on a, you know, if it's on a second home, your state and local income taxes, and once that hits $10,000, you're capped. And there are so many people, I mean, look at yourself in higher tax states, Illinois, New York, California, Massachusetts, and the list can go on and on. There's another dozen states that are up there. People in these states are getting basically burned. They're getting ripped off in the sense that they don't get to deduct all these taxes that they could have in the past. And so I think that we're going to see this cap removed. And if that's the case, we want to make sure that we look at when is this law retroactive or is it retroactive? Because let's say that there's a law that says we're going to remove the SALT cap and the $10,000 cap doesn't apply anymore. They could make that effective for 21 or for 22. And if it's going to be made effective for 22, then we want to make sure that we defer payments, let's say on income taxes, until January of next year if we can. So, again, I think we're going to see this change happen, but we're going to have to make decisions about timing. And, you know, if you're self-employed, if you've got rental properties, if you've got investments where you maybe can buy and sell or incur expenses, defer revenue, that sort of thing, we may have a lot more flexibility here. But we're going to want to look at both what is our income and what is and what are the tax brackets. So what is our bracket and what are the brackets going to be next year? and that's going to help us decide okay do we accelerate this income into this year to take advantage of what we think are going to be lower lower brackets um you know and again we may find out you know there's a tax law that gets passed in in july that says income taxes are going up and they're effective for january 1 of 22. so we'll have some time to plan um but again this is you know the way i'm looking at this is let's let's think about it now let's keep these thoughts in the back of our mind because we're not really sure exactly how this is all going to play out. The same thing, you know, I think for businesses, you know, what do we do with businesses just like as individuals? Higher tax rates possibly in 21, likely in 22. and and I think that's going to impact both c corporations and flow through entities so basically the difference between the two c corp gets taxed as its own entity so it piles its own return pays its own tax currently pays tax at 21 percent there's talk of that going to 28 percent maybe something in the middle but i could see the rate going from 21 up to something the flow through entities basically anything else s corps most llc's partnerships sole proprietorships And there I think we're going to see this QBI, this qualified business income. I think we're going to be seeing changes there as well. And the number that comes into play again is this $400,000 number. So that is something that if your income looks like it's going to be higher than that from your business this year or next, We definitely have some planning to do, and you want to watch the tax laws to see, has anything changed as far as this qualified business income, this QBI? All right, some of the tax credits that came out of the CARES Act, again, this was way back, when was that? back in the spring of 2020, the new December additions to this now extends the employee retention credit through the second quarter of this year. And it also increases the credit rate from 50% of the wages to 70%. And the third point here, so not only do we have an extension of the date we now can have an increase in the amount of the qualified wages but also so that the $10,000 amount goes from the year now to a quarter so a lot of changes here that we can get additional employee retention tax credits real big for any businesses that have employees that are paying payroll taxes so it definitely affects the your 941 taxes. And the other the other thing that I found that was really very, very beneficial when I was going through this stuff, you know, reading it over the weekend was this part right here. And that is who upsets a little sloppy. This 50 to 20% rule. So in the pass with the prior rule if my business let's say made a hundred had a hundred dollars of gross receipts from a quarter in 2019 I would have to show that those receipts were less than $50 in the same quarter of 2020 to get this credit in other words my gross receipts had to drop by more than half now all I have to show is that that hundred dollars of gross receipts now drop the less than 80 instead of less than 50 so it's much easier to qualify for this and then also we're also allowing new businesses to to look at part of 2019 to see if they can qualify for this credit as well so that that was something that was was unknown last time is what do we do with the new businesses now we know that new businesses can qualify. Some of the other rules that came out of this, the refundable payroll tax credit, again, valid through the first quarter of this year, but also applies to those who have self-employment income. So that would be any Schedule Cs, sometimes single member LLCs will generate self-employment income. And so again, this is something the employee retention tax credit certainly can come into play. The PPP, Paycheck Protection Program, this has been extended. And it's real interesting here because how the government is going to follow this, is going to monitor all of this. I have no idea, but $10 million loans are possible. We're using it for payroll, rent, other necessary expenses for the business. The loans are eligible to be forgiven. And if they are forgiven, this is not taxable income. So almost every situation the tax law, you know, if you owe me $100 and I forgive it, I want a tax deduction for that $100. And so I'm going to send you a 1099 for the $100 and you have to report that as income, as debt forgiveness. Now, there's some bankruptcy and personal residence. You know, there's exceptions to this, but that's our general rule. Here, the government is saying, And look, we're going to loan you, let's say it was $100,000 loan to a small business. And if this loan is forgiven, you don't have to pay tax on that $100,000. Now, the other part of this, something that I don't think, at least I didn't realize until I got into this a lot more, is the double dipping. And I just mentioned it's not taxable income. but even if it's not taxable income when it's forgiven we get a tax deductions for the expenses incurred in obtaining the loan so let's say it's a hundred thousand dollar loan and I incur a thousand dollars of expenses in obtaining that loan I can deduct the thousand dollars of professional fees let's say or whatever it is and if the loan is forgiven I don't have to pay tax on 100 grand. So, you know, there's a streamlined process here for the loans. And again, this all just came out in the last couple of weeks, but you borrow under $150,000. Think about this. All you're required to do is to submit a one-page form online. And the IRS, or whoever's going to be auditing this, is really only going to be looking at this if there's fraud or if you're using the proceeds for some sort of improper purpose. Now, improper purpose, I guess, would be something other than your payroll and your wages and rent and all of that stuff. But I'm not sure how this is all going to play out. So what it looks like to me is that if you can qualify to get this $150,000 or less loan and you qualify for this loan forgiveness, and again, I'd want to make sure, you know, go to the IRS website and see what is this one page document that I need to submit? You know, what is this paper form so that I know, okay, I qualify for this or no, there's no way in a million years I'll qualify or that only applies to this type of business and not mine. So again, a possibility that you could get into this PPP, right, the Paycheck Protection Program, get a benefit of a loan and also get very favorable tax results. You know, it's something that you need to look at. You know, certainly I think all small businesses do. You know, and I think this particular cartoon is why I choose not to prepare tax returns anymore But yeah let not pray that we don get audited for any other reasons here other than you know what we don want to deal with it right but we anyways let's uh we'll move on here to business meals um this is a change for this year and next 100 tax deduction so we don't have to do that 50 limitation rule only applies to food that from a restaurant okay so not not other um you know you go to grocery stores or whatever that's not good that's not going to work includes beverages on this so obviously the goal here is to get business owners to go support restaurants that obviously have been hurting through through covid not lavish or extravagant on the meals one thing to keep in mind with the business meals and you know and again i'm not sure how this applies in the sense of um you know i don't if i'm going to go out to have a business meal i'm going to do it whether it's a 50 or 100 deduction but i guess it could encourage more business um persons to to be doing business entertainment but the point i want to make though is that this is only meals so this is did not bring entertainment back into play So as far as 21 and 22 are concerned, business entertainment is deductible at 0%. Okay, not deductible. Business meals, though, go from 50 to 100. All right, a few other changes here. Paying our children or any employees, as long as it's quote-unquote reasonable, we can go up to this $12,600 amount without having any income taxes due for the children. Now, don't go paying the kids $12,600 even. Let's make sure that whatever you're paying them is reasonable based on their age, based upon what they're doing, how long it's taking, what are their abilities, is it manual labor, is it filing, what exactly is it that they're doing? But what we're doing here is that we're looking at ways to save money within the family. the family and so here this this amount that we paid this eighteen thousand dollars in this hypothetical now the kids here are going to owe nothing and and this would be the same thing in 21 as well the parents though whoever owns the business are going to get the deduction for this eighteen thousand and so the family is going to end up saving money on taxes now again the work has to be legitimate we're not just paying them for you know some sort of an allowance or or whatever uh has to be legitimate work and these numbers obviously could be a lot more or a lot less depending on what our 15 and 17 year olds did you know in this particular situation other numbers for business owners here section 179 stayed pretty much the same bonus depreciation automobiles stayed the same. So section 179 still gives us the opportunity to deduct up front a lot of business expenses that would have to be depreciated over time. And then the bonus depreciation gives us kind of another way to to go about that. So again not much really changing there. Where I think this is going to change in the business side, and again this is on the flow through entities so not on a c-corp but on an s-corp or again anything but a c-corp really i think we're going to see some changes in the phase outs and the phase outs are going to be in the amount of income you make so currently depending on the type of business there may be a phase out there may not and it may depend on the wages paid there's the complicate the the The calculations get, I'd say a bit complicated, but for the most part here, if you make a certain amount of money, making the 400,000 comes into play and you have a service business, you may lose the ability to make this deduction. And so it's obviously gonna have an impact on the type of business entity that you may set up or you may wanna set up here in the future. And with this potential tax change, this $400,000 amount, you need to keep this in mind, that if you know that you're going to be in this position, you know, and obviously good position to be in, right, you're probably not wondering, you know, where your next meal is coming from. You know, you may not also think that you're quite a rich person either. But if your income is more than this 400K, you need to look at QBI. You need to look at, am I going to be phased out? And if so, is there a way around it? Maybe I have a C corporation. Maybe I have a C corp and an S corp. I don't know. Lots of different possibilities as far as the structuring goes. But again, it's something that we've got to wait and see on this one. If your income, I think, stays well under the 400,000, I don't think you're going to have a problem with the QBI unless that whole area is repealed. And I think if there's a repeal there, there's going to be a major, major tax bill to repeal it. And we're going to know about that one pretty soon. So I don't see that on the radar. And again, I think if your income stays under the 400K, you're going to be are right as far as what the QBI is or probably what your personal tax rate is going to be anyways. Okay. Our intoxication here, quote here, and I never did really understand this when I was doing, when I had my law firm and doing a lot of tax planning and whatever, is that people were real happy when they got a big tax refund. And I was always kind of like, oh, that's really not that cool because the government had your money, you know, they had your 10 grand all year and you could have been making money off of that. But I guess, you know, the flip side of that, much better than owing. So anyways, let's try to get it right and get it close either way so the government doesn't have a lot of our money in its bank account all year. So what I want to look at for the next few minutes here to end my presentation before I get into some of the Q&A is the tax tips. What do I think we should do? I think we need to look at our entity structure for anybody in business and consider timing options. When should I take the income? When should I take the expense? Should I depreciate it? Should I take 179? Should I use bonus depreciation? Be flexible because the tax laws are going to change. We just don't know to what extent. I think we can plan on an increase for 22. And so we have to look at timing issues as we get into the third and fourth quarters of this year. Do we want to try to bring as much income into this year? Do we want to push back some expenses? Maybe we do, maybe we don't. But I think again, by the time we have to make that decision, we're going to have a lot more knowledge. And likely we'll even have the new tax law, if there is one, in place by then. It may not be effective until next year, but it'll be in place. Some of the other things I think are going to happen, this 39.6% tax rate, this is what it was prior to the Trump tax cut. And this is what it's going to be if nothing happens in 20, let's say 2026. So it'll sunset back into this. So I think you're going to see this bump up for those that make over 400k a year. I think we're going to see this cap eliminated, which is good, not so good here. And I think, and this is not, you know, a typo here in that for people that have an income over $1 million, the long-term capital gains rates could go to ordinary income rates. Okay, so that could go back to this 39.6 and you get spanked for the investment income tax, the Obamacare surtax of 3.8%. So for those making more than a million, it's very possible that you could end up with this 43.4% rate plus your state rate. So you can see that, you know, if your state tax rate is anything at, you know, six and a half percent or so, you could be at a 50% tax rate on a long-term capital gain. Now, if this does become the law, or what looks like it's going to become the law, those that are in this sort of a tax bracket that are making, quote unquote, a lot of money, had better look at making some sales this year and not waiting until the tax rates go up. All right, a few other ones here, higher payroll taxes for those that make more than this $400,000. So right now, your Social Security taxes start getting phased out, or excuse me, they get eliminated actually on the Social Security part at about, and I should know this, but I don't, around $140,000, $138,000, something like that. Under the Biden tax plan, that $140,000 would stay in place until you hit $400,000. And so there would be this donut hole type of situation where, let's say, between $140,000 and $400,000, it would be zero. But between zero and $140,000, and then anything over $400,000, would this be the $6.2. So something to look at there as far as wages go. I mentioned the higher corporate tax rate increases on either a renter or first-time homebuyer credit and child and dependent care credits. So while these are going to be here, not necessarily good, right, tax increases, these are tax decreases. And so what we're looking at is kind of a shifting of the priorities from the higher income to the lower income. I think other things that we need to look at for businesses for this year, we need to understand depreciation options. I know nobody really wants to sit down and try to read depreciation laws, certainly myself included, but it's something that we need to understand our options. Do we want to do it in this year, next year? And again, this timing, accelerate or defer, real big issues as far as when are we going to be taxed and to what extent. And, you know, I think I'll leave you with some of the other thoughts on you need to consider other ways to make money that won't necessarily increase your current taxes. And again, if not for this year, then next, whether we're talking about municipal bonds, whether we're talking about opportunity zones and the ability to postpone or eliminate capital gains, talking about saving for college and obtaining tax-free savings, qualified small business stock and getting an unlimited, basically up to $50 million of capital gains at no tax. So again, looking at ways we can make investments that are not going to trigger negative tax results. 1031 exchanges in real estate. What about investing in a retirement plan, whether it's an IRA or a SEP or a 401k, Roth or traditional, right? What about if we're starting to do index universal life insurance and other ways where the money, where the income is not going to be taxed in the current year. Annuities, oil and gas, health savings accounts, try to defer out as much as possible, or something like oil and gas, accelerate the tax deductions, savings bonds, whatever. I'm not here obviously to give you tax, or excuse me, to give you investment advice at all, but just look at ways that some of the investments kick off tax issues, whether they be, you know, no taxes or whether they be maximum taxes. So, you know, trying to figure all this stuff out, you know, if Albert here can't figure it out, how are we supposed to figure it out? But, you know, these are my thoughts as to, I think, where we're going to be this year, where we need to be, and maybe some thoughts on some planning for the remainder of this year. you
