Blog | Personal Finance

Take Command Of Your Taxes During COVID with Tom Wheelwright

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We're always discovering how to make way more money and pay way less in tax. With the filing deadline rcently passed, it’s time to look ahead to the rest of the year.

We're in such an unusual time. For example, we have a net operating loss carry back in 2020 that we're not going to have in 2021. We have a presidential election going on. Who's going to win? Will taxes go up as a result?

I just did a little YouTube video on “Is it patriotic to pay lots of taxes?” The answer is it's patriotic to do your duty by the law and everybody should do that. What's not patriotic is to pay more taxes because you don't understand what works. That's just ignorance.

Is It Patriotic To Pay Taxes?

We're in the very first few weeks of the rest of the year. It's like Happy New Half Year, right? We have an opportunity to reboot our own finances. Let’s make the best of it.

When we look at tax returns from prior years, there's not a whole lot we can do. However, there's an enormous amount we can do for the future. So, we want to start this strategy as soon as possible. You have got to act before the next filing deadline on Oct. 15.

First, you want to pay up anything you owe from prior years. Failure to pay will cost you one half of a percent per month in penalties and will save you from getting a lien against your account. What does an IRS lien mean to you? It means that your credit immediately plummets 40 to 50 points. Second of all, they're really hard to get rid of.

Get a fresh start.

Next, if you have a tax refund coming and you have an estimated payment due, don't take the refund. Instead, apply that to your estimated payments, then make less of an estimated payment. That way you get the money immediately.

When you're calculating how much money you owe for 2020, you need to include your unemployment benefits. For a lot of you, that's been a pretty significant number. Just remember it's taxable and include that in your computation.

Of all the stimulus programs activated to lessen the impacts of COVID-related shutdowns, the biggest one is the $100,000 of IRA or 401k pension plan money you're allowed to take out if you've had true financial hardships. Did you reduce your business hours, or shut down your business because of COVID? If so, you can get up to $100,000 per taxpayer, which you don't have to pay back for three years. So, you can get an interest-free loan for three years, or you can spread the tax over three years.

You need to get a Paycheck Protection Program (PPP) loan, as most small businesses do, because it's free money. People should take advantage of a program intended to keep businesses afloat. There’s no shame here. We've got a PPP loan since we really did need the cash. I'm incredibly grateful, frankly, for the loan, just like several clients are. Currently it's taxable but the next stimulus bill makes it non-taxable if it passes. Treasury Secretary Steven Mnuchin and President Trump have both said there will be items in the next stimulus bill that the Democrats want, so that provision to make that PPP non-taxable is likely to pass.

You need to sit down with your accountant and make some choices for a long-term comprehensive plan of action. We basically invented this. We look at every year and every aspect of your life because taxes impact every aspect of our life. It takes us several months to do that, then you report it on your tax return. Working with your tax advisor on a regular basis is critical to your success in reducing your taxes.

WealthAbility has created an educational system so you can put the pieces together to do what the government wants you to do. For example, the government wants us to buy a house. Instead of renting, you buy a house and you get a tax deduction. That's the government saying they want you to buy a house. Now they don't want you to buy a luxury house, because if it's more than $750,000, there’s no deduction.

The government wants us to produce energy, both clean energy and fossil fuels. So, you can put on solar panels and buy an electric car. Or you can choose fossil fuels. There are tax benefits because the U.S. government wants to be energy independent. Use the resources that are available to you, including my book Tax-Free Wealth.

You know, this whole crisis is as much a personal crisis as it is a government or a societal crisis. It's a crisis of how we are going to behave, how we are going to react and how we are going to adapt to difficult situations.

We can reboot our own economy and we can reboot our own tax planning. Sit down with your advisor and work through it. If you haven't yet done a wealth and tax strategy, make sure you do that.

Original publish date: August 17, 2020

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