Duvall & Associates, Inc.
BUSINESS ADVISOR NEWSLETTER
 

 Making the most of timing and tax rates

- by Alan Duvall 

Published in Dayton Daily News  August 5, 2007 

“A change would do you good.”  –Cheryl Crow 

Timing and rates – the pillars of tax planning.  Effective strategists labor to move income and deductions between parties and time zones to generate beneficial tax results. 

Begin with a review of prior year returns.  Identify pesky areas where limitations reduced tax-saving opportunities, then counter-attack with innovative new strategies.   

Consider itemized deductions.  Many, such as medical, employment, investment and tax preparation fees are reduced by percentage of income limits.  And itemized deductions do nothing to save Ohio taxes. 

Situation 1: Assume you are a top bracket taxpayer with $100,000 invested funds and a like 6% mortgage.  The mortgage interest generates no Ohio tax savings.   

Change: Contemplate using the $100,000 invested funds to pay off the mortgage.  Taking Ohio tax savings into effect, you would be earning a “guaranteed” rate of 6.7% on the monies.  Brokers may claim you could earn more on your investments, but ask them for “guaranteed” returns on available investment vehicles and witness their hedging. 

Situation 2: Pretend you are a top-bracket person, have temporarily fallen into the dreaded Alternative Minimum Tax trap and can’t get out.  Deductions are largely vaporized in this twilight zone of tax worlds where income is flat-taxed at a 26/28 percent rate. 

Change: Counter-intuitively examine your ability to accelerate income into the Alt Min year.  If such income earned in another (regular) tax year would be taxed at 35%, you could be one of the lucky ones who actually benefit from the lower-rate Alt Min creature.    

Situation 3: Your adult child is experiencing difficulties paying her home mortgage.  If you directly pay the loan payments, you cannot deduct the interest since the liability so paid is not your own.  

Change: It may be best to either gift or loan monies to your child so she can pay own mortgage, thus preserving her own ability to deduct interest payments. 

“Dreaming of the things we could do...can take the pain away.”  –Whitesnake 

Alan Duvall is a certified public accountant in Dayton.  Contact him at Alan@Duvallcpa.com.  Previous articles archived at www.duvallcpa.com.