Episode 14: Year End Planning and Reducing Your 2020 Tax Bill

Financial Independence: A Better Perspective

Financial Independence: A Better Perspective is a new podcast hosted by Lance Edwards, bestselling author of “How To Make Big Money in Small Apartments,” and Randy Luebke, Founder of Lifetime Paradigm, Inc., an organization dedicated to helping clients to and through their retirement by fixing broken retirement plans, putting them back on track and making up for both lost time and insufficient savings. In this episode, Lance and Randy recap some of the ideas presented in their previous podcast about Cost Segregation while going into more detail about how to benefit from the CARES Act. As we enter the fourth quarter of 2020, they also discuss practical strategies for year end planning and reducing our annual tax bill.

What you’ll learn in this episode:

*September 15, the day the episode was aired, was, as Randy says, “the day many small business owners got slapped in the face by the IRS because they. . .didn’t do tax planning from the year before.”

*Speaking of late business tax return filings, Randy says owners can make a contribution to an IRA to create a deduction. If you’re self-employed and have no other employees, you can do a SEP.

*Prompted by Lance to list a “pecking order of tools,” Randy says a good basic strategy is to “write all the checks you can, spend all the things you need to spend your money on before the end of the year – and you’re gonna push off receiving your income until the year after.” He suggests you prepay whatever you’re allowed to, including insurance premiums and a new vehicle if you need one. He adds, “Get that money spent in 2020 to create all the expenses you can to reduce your capital, cash flow or your income, and then push all that capital and future income out into 2021.”

*While saying every individual should ask specifics from their CPA, Randy estimates that you can prepay office rent for one or two months to claim it for the future. “You wouldn’t be able to deduct it,” he says. “The idea is to be able to claim the deduction when you write the check.”

*The CARES act, passed in March, allows those who create a net operating loss this year to go back to previous years where they paid taxes and apply that loss towards that income and get the IRS to write a check back to you. Lance confirms, “Whatever your net operating loss is for this year, you can apply it against when you have positive gains up to five years back and get that back at whatever tax rate you were paying.” Randy adds, “You have until you file your tax returns next year to take a cost segregation study from this year and reduce your taxes next year. You have a year on this cost segregation to take advantage of the deductions for 2020.”

*Whether you’re a self-employed one-person shop or one with mom, pop and kids, simple things like 401(k)s and SEPs can work to your advantage. The idea is to be able to take pretax dollars and put them into one of these retirement plans to create a tax deduction – and then defer the earnings on those investments over time and pay taxes on them in the future.