The sun is baking the mud on your ATVs. Air conditioning in your truck is the only thing luring you out of the office. In the middle of your sip of iced tea you realize that the 3rd quarter is wrapping up. We’ve got the business tax planning tips to keep you from scrambling in the 4th quarter or hiding under your desk on April 15th. Planning your purchases, using a 1031 Exchange, talking to your advisor about Solo 401k options, and our other small business tax planning tips will help you sail smoothly into 2016.
Throughout the 3rd quarter, we will be offering tax planning tips here on our news feed. First, let’s start with self-directed 401K, self-directed IRA, and the best strategies for large purchases.
Self-Directed 401K vs. Self-Directed IRA Plan
Stocks, bonds, and mutual funds aren’t as strong these days. A self-directed IRA or 401K plan can ramp up your retirement funds. It can also offer new potential investment opportunities in areas like real estate, peer-to-peer loans, and mortgage notes. Choosing your own, personalized investments can often be much more lucrative than simply following along with the national trends.
- Solo All the Way to Mexico
A Solo 401K Plan has some great perks such as high contribution limits, no annual filing requirement, bankruptcy exemption, and does not require a third party custodian (unlike the self-directed IRA). You can also offer yourself a tax-free loan to purchase farm equipment, semi trailers, machinery, fleet vehicles, or even to pay for your vacation to Mexico!
- Not Your Grandma’s IRA
Self-directed IRAs can offer a higher return than the Solo 401K but you’ll need to weigh the risk. The rules for a self-directed IRA plan are tricky and violation of the rules holds hefty consequences. Be sure to find an advisor with high standards when it comes to integrity. Your Individual Retirement Custodian may have limited duties and responsibilities to you. Make sure that you want to be a hands-on investor. Also, due to the complicated nature of these, your advisor will most likely charge more than what you’d pay for a standard brokerage IRA.
- Old is New Again
Self-directed IRAs have been available since 1974. Legislation requires a third-party custodian to hold the assets. So, interested custodians (banks or brokerage firms) limited the investment options to the institutions that customarily shared business with them. In 2001, the IRS further opened the alternative investment categories. The continued lull in the stock market has been a boom for do-it-yourself investors who want to expand their investment horizons. If that describes you, then go all-in and grab up some fresh investments!
Best Strategies for Purchases
- Tax Tail Doesn’t Wag the Dog
The tax-extension bill and the bonus depreciation incentive can be used together (Section 179). This act was passed late last year and caused many business owners to make hasty equipment purchases. Don’t let these last minute incentives drive your purchasing decisions. Purchase new equipment when you need it.
- Prepare to Pay the Penalty
Prepare for health insurance requirements. The Affordable Care Act (ACA) is changing requirements again beginning January 1, 2016. Talk with your provider to make sure the coverage you provide is going to be adequate. Or, decide now whether just paying the tax penalty will be a better financial choice for your business.
- Use It Or Lose It
If you buy equipment towards the end of the year, make sure to get it “placed in service” by year-end. Otherwise, you’ll miss out on the deduction and need to push it into 2016.
- Size Matters
Buy a “heavy” SUV with a vehicle weight rating (GVWR) over 6,000 pounds. If it’s heavy, your pickup truck, van, or other vehicle is cause for an immediate write off of up to $25,000 as long as you place it into service before the end of 2015. Don’t want a heavy SUV? Okay, get a regular one… even a used one and you’ll still save significantly more money than purchasing a new or used sedan.
Our next news post will focus on replacing or upgrading assets with a 1031 Exchange, ways to make your deductions more efficient, and how to choose your tax bracket.
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