Tax planning is one of the most often overlooked aspects of financial planning for many consumers. Proper tax planning is essential if your goal is to maximize the financial condition of you and your family.
We will now take a look at all of the areas of taxation that you should be concerned with if you want to improve the financial position of you and your family to a level that can help lead to financial independence.
Because tax planning is such a broad and
sometimes complex area of planning we will focus on taxation that is common to
a large number of people (those making $300,000 or less) and then analyze and
comment on other areas of taxation that, although does not apply to the masses
should be a part of your mental framework as your goal should be to increase
your income and reach the higher tax bracket areas where you may need to do
more sophisticated and complex tax and estate planning.
On the following pages we will look at sales taxes, income and payroll taxes including forms W-4 and W-9, property taxes including a discussion on millage rates, adjustments, credits, deductions, and capital gains and finally conclude with the taxation issues surrounded by the sale of your personal residence.
Words of Inspiration for Those in a High Tax Bracket
By being in a high tax bracket and/or having the need for estate planning you should be in a very successful position or in position to be very successful with a few strategic moves.
Many people often complain about being in a high tax bracket and/or having to pay estate taxes.
However, it is a better position to be in than that of those in lower tax brackets with no real disposable or discretionary income that allows them to make strategic moves that could benefit themselves and their family for generations.
By having a need for tax and estate planning
strategies you should feel good about yourself as you are in the top tier of
income earners and investors and that is a reason for a certain level of pride
and confidence about your future.
Sales tax is a tax on goods and services that is common in all 50 states for the most part. The rates vary anywhere from 1% to 15% generally with states that do not have an income tax system (Florida , Alaska, Tennessee, Texas, South Dakota, Nevada, Washington and Wyoming) at the higher end of the spectrum.
The sales tax is a tax that is generally difficult to avoid. Your main defense would be to purchase products or services (that have a sales tax) on an infrequent as possible basis.
Those who grow their own food would not purchase as much and would have a lighter sales tax burden than most. Those who make infrequent large purchases such as appliances, furniture, autos and the like would also avoid sales tax payments to a degree.
In general however, sales tax will be incurred by most consumers and you should be prepared to pay a certain level of sales tax.
Try to keep your sales tax payments as low as possible by making purchases (that are high in sales tax) on an infrequent as possible basis or just make enough income where the tax factor becomes less of an issue.
When you do make a purchase be prepared to pay the tax as it appears that it will be here to stay with most states and local government now seeing declining or stagnant revenues and ever increasing expenses.
Sales taxes are also deductible in many cases on your Federal 1040 so you want to see which gives you the higher deduction—sales or property taxes if you itemize (use the long form) on your tax return.
It is important that you know your income tax situation at the Federal, State and Local level. What is the effective tax rate that you are paying at the Federal, State, and Local Level.
Just because you are in the 25% tax bracket does not mean that you will pay—or that you have paid—25% in income taxes to the government.
Your W-4 exemption allowance selection will play a key role in the amount that you will have withheld from your paycheck and pay to the government.
Your “effective tax rate” could be quite low and that is the rate that you should be particularly concerned with. If your effective tax rate is high there are ways to lower the rate by doing effective tax planning.
Your effective tax rate takes into consideration adjustments, credits, and deductions among others and they have the effect of reducing your taxes, eliminating your taxes, or creating a refund for you and your family on your federal and possibly state tax returns.
Depending on your income and family situation your options or strategies may be limited. However it is important that you look at all of the adjustments, deductions, credits and other options that are available to you and your family and utilize them to benefit you and your family as best you can.
The current (2010) tax rates (Federal Level) for your ”taxable income” range from a low of:
* 10% ($0 to $8,375 single)
* 10% ($0 to $16,750 married filing jointly)
* 10% ($0 to $8,375 married filing separately)
* 10% ($0 to $11,950 head of household)
The maximum rates rise to:
* 35% ($373,651 and up—single)
* 35% ($373,651 and up-head of household)
* 35% ($373,651 and up-married filing jointly)
* 35% ($186,826 and up married filing separately)
Your taxes would be calculated on a “marginal tax basis” meaning just because you are in the 35% tax bracket based on your taxable income your tax rate would not be a straight 35%.
Let’s say your 2010 total income is $600,000 and after all of your adjustments, credits, deductions and exemptions your taxable income was $400,000 and you were filing married filing jointly.
Your taxes would be the following based on the 2010 Tax Rate Schedules(Keep in mind we are not considering the AMT—Alternative Minimum Tax):
• $16,750 of your $400,000 would be taxed at 10% for a total of $1,675
• $68,000 minus $16,751 would be taxed at 15% for a total of $7,687
• $137,300 minus $68,001 would be taxed at 25% for a total of $17,235
• $209,250 minus $137,301 would be taxed at 28% for a total of $20,146
• $373,650 minus $209,251 would be taxed at 33% for a total of $54,252
• $400,000 minus $373,651 would be taxed at “35%” for a total of $9, 222
In the above example only ($400,000 minus $373,651) $26,349 was taxed at the 35% tax rate.
• The total tax owed would be ($1,675 + $7,687 + $17,235 + $20,146 + $54,252 + $9,222) $110,217.
• The “effective tax rate” would be 18.37% ($110,217 / $600,000).
Had the tax rate been a flat 35% the total tax owed would be ($400,000 * 35%) $140,000 a difference of ($140,000 minus $110,217) $29,783.
Due to the tax rate schedules having a marginal effect (along with your adjustments, credits, deductions and exemptions) you would pay less (18.37%) than if you had to pay a flat rate of 35%.
OK, So Let’s Recap:
• Your total income for 2010 was $600,000.
• Your adjustments, credits, deductions and exemptions were $200,000.
• Your “taxable income” was $400,000.
• Due to the marginal tax bracket system you paid $110,217 in taxes.
• The amount you paid ($110,217) represented 18.37% of your 2010 earnings of $600,000.
• Even though you are in the 35% (highest tax bracket) tax bracket your “effective tax rate” was 18.37%.
• If you wanted to compare the effective tax rate of 18.37% to the effective tax rate at a straight 35% ($140,000/600,000) the rate would be 23.33%.
Again the 23.33% would not be your tax rate—this comparison is only done to illustrate the difference in percentage (23.33% minus 18.37% equals "4.96%") savings of the marginal tax over a straight tax.
Your goal through tax planning should be to get your “effective tax rate” as low as possible through legal tax maneuvers and effective long-term financial planning.
Business Taxation Issues:
• Sole Proprietor
• Trusts—Buy/Sell Agreements etc.
A sole proprietor is taxed at ordinary income tax rates and would be filed on your personal tax return on schedule C subject to self-employment tax (any earnings over $400) and taxed at your ordinary income tax rate based on your tax bracket.
As an LLC you have a choice of filing options including filing as a Corporation on the form 1120.
LLP’s are Limited Liability Partnerships and are often used by white collar professionals as it provides coverage against the personal assets of the partners.
Personal Service Corporations are taxed at a flat 35% rate for the most part.
As a partnership you normally would receive a schedule K-1 which would include your earnings from the partnership. You would report your income on Schedule E and transfer your earnings or loss over to page one of the 1040 long-form. You too, would be subject to self- employment taxes.
An S Corporation has a shareholder limit but is taxed in a similar manner as a Regular C Corporation.
A C Corporation is taxed at the corporate and shareholder level. There are favorable corporate tax rates and many deductions are available for most expenses that are business related. You also have loss carry-back and loss carry forward options that could be of benefit to you and your company.
LLC’, LLP’s, S-Corps and C-Corps all provide liability protection as your personal assets could not be attached in the case of a lawsuit in general. That fact alone should give rise to your strong consideration of forming your enterprise under one or a combination of those business structures.
Liability Protection with Your Real Estate Holdings:
Separate LLC’s for your Real estate Holdings—Corporation or LLC’s inside a Corporation—Subsidiaries—Parent Companies etcetera are proven strategies so be sure to run liability protection measures by your CPA and Attorney if you currently own and rent or plan on owning and renting multiple properties in the future.
In case of lawsuit you want to pay out the least
amount possible and by legally “separating” each rental property you limit your
exposure. This can be a complex area of planning so be sure to utilize competent
Excise & Other Taxes
• Cable TV
• Fuel Surcharges
Unfortunately excise and other taxes by government authorities appear to be here to stay. As a result of providing you services that you expect and can depend on the government must recoup some costs of their expenditures.
Look for increases in “fees” such as 911 emergency fees, storm water fees, license fees, business license fees, corporation renewal fees and other fee increases as many politicians work around the negative connotations of a “tax increase” by tacking on “other fees” to help ensure their service levels don’t drop off substantially and to keep their communities solvent.
If you have low “discretionary income” any fee increase has the same effect as a “tax increase”—your living conditions will be made more difficult. Therefore, it is imperative that you either increase your income or decrease your debt (obligations) or preferably a combination of the two.
Your goal should be to maximize your tax position from this point forward. By honestly looking at your tax situation in total and making the necessary adjustments you can immediately improve the living conditions of you and your family. If you are now at your optimal tax position continue to re-analyze your tax situation on an annual or semi-annual basis and make improvements where possible.
Like all areas of financial planning tax planning is a continuum and should be analyzed on an ongoing basis. If you are unable to improve your tax position at this time look at other areas of your financial life (insurance, investments, education, estate taxes/wills, and retirements) to see where you can make improvements.
Payroll Taxes (Social Security, Medicare & Withholdings) :
Payroll Taxes include your W-4 withholding allowances on your federal return, your state withholding amount on your state return, and social security and medicare on your federal return. Your signature on a W-9 may also involve possible with-holdings as well. Workers Comp could also be looked at as a tax for a business owner, however we will not explore that at this time.
If your employer offers a flexible spending account you should seriously consider selecting this account as you save on your taxes by having the withholding done on a pre-tax basis. You can use a flexible spending account for child care and other designated purposes.
Social Security Tax
What is the Social Security tax rate and what is the maximum taxable earnings amount for Social Security in 2011?
If you are an “employee” or “employer” you would contribute:
• For 2011, the maximum taxable earnings amount for Social Security is $106,800. The Social Security tax (OASDI) rate for wages paid in 2011 is” 4.2 percent for employees” and “6.2 percent for employers.”
• For example, an individual “employee” with wages equal to or more than $106,800 would contribute $4,485.60 to Social Security in 2011. The “employer” would contribute $6,621.60.
• For Medicare's Hospital Insurance program, there is no limitation on taxable earnings. Tax rates under the Medicare program are “1.45 percent for employees” and employers” and “2.90 percent for self-employed persons.”
For those who are Self Employed you would contribute:
• For 2011, the maximum taxable earnings amount for Social Security is $106,800.
• For Medicare's hospital insurance program, there is “no limitation on taxable earnings.” Tax rates under the Medicare program are “1.45 percent each for employees and employers”, and “2.90 percent for self-employed persons.”
W-4 Withholding Allowances
The purpose of a W-4 form is to have your employer withhold a certain amount each pay period based on your personal and financial situation.
If you did not owe any taxes the previous tax year and/or you expect to owe no federal taxes this year you may be able to claim “exempt status” and not have any taxes withheld.
Be aware that if you are being claimed as a dependent on another return you “may” not be able to claim exemption status.
There are a number of “personal allowances” that you can claim that have the effect of reducing the amount of your with-holdings.
• If you want the maximum amount withheld you can claim “zero exemptions.”
• Married with exemptions and claiming your spouse will have a lower amount withheld than Head of Household and Single due to the higher number of exemptions from claiming of spouse assuming all other exemptions are equal.
• The same would be true if you claimed zero exemptions, however you can be married and elect to have your with-holdings done at the higher single rate.
• If you are married, but legally separated you should check the single box.
• You can also use your expected tax credits to
increase the number of your personal allowances.
Personal allowances include the following:
2) Single with one job
3) Married with one job and spouse does not work
4) Your wages from a second job or your spouse’s wages or the total of both are less than a designated amount ($1,500 for 2011).
6) Number of Dependents
7) Head of Household
8) Child or Dependent Care Expenses
9) Child Tax Credit
Always realize that the higher the number of allowances (up to a limit) the less withholding you will have on your paycheck—or another way of looking at it is that your take home pay will increase.
Likewise, the fewer the number of allowances you claim—the more withholding you will have on your paycheck—or another way of looking at it is your take home pay will decrease.
If you qualify—and claim exempt status you will have no (zero) income tax withheld and you will receive the maximum amount possible when you receive your paycheck (from a tax withholding perspective).
• Be sure to avoid having too little tax withheld as there could be penalties involved.
• You can elect to have an additional amount withheld from each of your paychecks if you feel you may owe taxes or will not otherwise have enough with-holdings and you want to avoid potential penalties.
• You can also elect to have an additional amount withheld if you have a secondary income source (self-employed and filing a “schedule C”) instead of making quarterly estimated tax payments.
• Be sure to have the right additional amount withheld or you could still possibly face penalties. Consult your tax professional or CPA for further advice.
If you plan on itemizing or claiming adjustments to income and you want to reduce your with-holdings to a lower amount there is a deduction and worksheet area on page 2 of the W-4 in which you can do so. You can also go to irs.gov and input your data on an interactive W-4 worksheet.
State Withholding Allowances
G-4 State of Georgia:
The Georgia G-4 form is similar in style and scope to the Federal W-4 form. In Georgia there are exemption limits (if you claim more than 14 allowances you will be under additional scrutiny by the Georgia Department of Revenue).
As long as your allowances are accurate they will be granted for the most part.
Other State Withholding Allowances:
Most states follow the Federal Guidelines, however there are some that follow a different format. Contact your state Department of Revenue to get the current guidelines on your withholding allowances.
If your state does not have an income tax system
you normally would not be concerned with your withholding allowances.
If you are a subcontractor or self-employed and are paid by others you may be requested to complete a W-9 form prior to the financial engagement. Because a business is required to file certain information returns with the IRS they may have you complete a W-9 form.
If you are an individual and have not set up under a company name and obtained your EIN (Employer Identification Number) you would use your social security number, however if you were set up as a business and properly obtained an EIN number that would be your TIN (Taxpayer Identification Number).
The W-9 form is basically used to report income that is paid to you whether it be from a real estate transaction, mortgage interest you paid, cancellation of debt, IRA’s etcetera. You would have signed a W-9 if you obtained a mortgage, received a distribution from your IRA etcetera—although it is easy to forget signing the form due to all of the other paperwork you may have signed.
A W-9 form is used to certify that the TIN (Taxpayer Identification Number) you are giving is correct, to certify that you are not subject to backup withholding, or to claim exemption from backup withholding if you are a U.S. exempt payee. If applicable, you would also certify that as a U.S. person, your allocable share of any partnership income from a U.S. trade or business is not subject to the withholding tax on foreign partners’ share of effectively connected income.
Some companies have their own version of a W-9
and if it is somewhat similar to the W-9 you must use the requester’s form.
The property taxes and insurance portion of the escrow fund usually accumulates over a period of months and when your tax bill and insurance premium becomes due money is pulled from the escrow fund to make the payments.
Property taxes could possibly be reduced by homestead and other exemptions that are available in various states and counties. Be sure to contact your local and state taxing authorities to see if you qualify for any exemptions. If you are eligible you should complete the paperwork as soon as practical to claim your exemption(s).
By claiming all of your exemptions that you are entitled to at the earliest possible date you will put yourself and your family in position to have your property taxes effectively reduced.
The property taxes are assessed at 40% in Georgia. To estimate your monthly real estate tax payment quickly if you plan on purchasing in the metropolitan Atlanta area multiply your expected purchase price by 40 percent.
Deduct from this amount your homestead exemption (you must file for the exemption the year after purchase from January through March or April—depending on what County you move to) using the following figures as a starting point—for more accurate and up to date exemption and millage amounts contact the tax commissioners office in the County in which you plan to move.
The deadline for filing for your homestead exemption after purchasing your home for the following metro Atlanta Counties are April 1st, unless otherwise noted.
Dekalb $20,000---Deadline March 1st
Douglas Call---Tax Commissioner
Fayette $9,000---Deadline March 1st---770-461-3652
Fulton $30,000---Atlanta $10,000---404-612-6440
Hall Call---Tax Commissioner
Paulding Call---Tax Commissioner---770-443-7606
Multiply the assessed value minus the homestead exemption amount by the millage rate in affect in the area you want to move to.
In metro Atlanta the rate ranges from the mid twenties to the mid forties.
Divide the figure you come up with by 1000 to get the annual tax figure. Divide by 12 to calculate your estimated monthly property tax.
How To Calculate Your Property Taxes
Quick Example: You buy a $300,000 dollar house in Fulton County.
In the city (Atlanta) where the house is located the millage rate is 39.91.
The assessed value at 40% is $120,000. 120,000 minus $40,000 homestead exemption equals 80,000.
80,000*39.91/1000 = 3192.80
3192.80/12 = 266.07 per month in property taxes.
Normally each city within the County have their own tax mill rate due to varying needs and operational capabilities of a particular city.
If the property is located in an unincorporated (non-city area) area of the County the services are normally lower and so is the mill rate.
What Are Millage Rates?
Sometimes the State, County, and Cities in Georgia will offer credits from sales tax collections to offset or reduce the effective millage rate. By doing so, your taxes would be lower.
The credit is normally in the form of a millage rate reduction and will be displayed on your tax bill.
The millage rate is a taxing formula (1 mill equals 1/10 of a percent) used by state, county, and local governments to help them run and perform various government functions. The rate is usually devised by state legislators, county commissioners, school boards and city councils.
Let’s Say Your Mill Rate Is As Follows:
State Tax $70,000* .250/1000 = 17.47
County M&O $67,000*7.321/1000 = 490.51
County Sales Tax Credit $72,000* -1.921/1000 = (138.31)
County School M&O $70,000* 20.00/1000 = 1400
County School Bond $72,000*1.650/1000 = 118.80
City $72,000*9.893/1000 = 712.30
City Sales Tax Credit $72,000*3.509/1000 = (252.65)
City Bond $72,000*.399/1000 = 28.73
Total Mills 34.083
Total Mills Before Reduction 39.51
Total Credits in Dollar Amount (138.31) plus (252.65) = ($390.96)
Gross Tax—17.47 + 490.51 + 1400 + 118.80 + 712.30 + 28.73 = $2767.81
Net Tax—2767.81 minus 390.96 = $2376.85
In Georgia you will normally receive a “Notice Of Assessment” from the County Board Of Assessors Office outlining your previous fair market value, your current fair market value and your 40% Assessed Value.
Assessed Value times 2.5 equals potential Fair Market Value (72,000*2.5 = $180,000).
Final Thoughts On Property Taxes & Millage Rates
If you are a homeowner property taxes will be with you and you should be in a position to pay your current annual tax bill and also anticipate future tax increases.
Clues to possible future increases can be found by asking yourself the following questions among others:
• Does the city I live in have adequate financial reserves?
• Are services being adequately provided?
• Are there infrastructure (roads, tunnels, bridges, sewer etc.) problems that may need to be addressed now or in the future?
• Are there funding shortages for our local schools?
By honestly looking at and answering the above questions you should be in a position to determine if there is a high likelihood of your property taxes increasing and therefore factor it into your financial planning.
Adjustments, Credits & Deductions
• Adjustments to your income have the effect of reducing your adjusted gross income and thus your taxable income.
• Some adjustments include tuition interest, self-employment tax, IRA contributions etcetera.
• Credits are a dollar for dollar reduction in your income tax or a dollar for dollar increase in your tax refund. Credits have more value than adjustments or deductions. Some credits are refundable and some are not.
• A refundable credit would have the effect of increasing your tax refund amount if you were due a refund or reducing the amount you owed if you were not due a refund.
• A non-refundable credit would have the effect of bringing your taxes down to as low as zero. The remaining credit could possibly be used in future years if the credit had a carry forward feature.
Schedule A Deductions:
Schedule A deductions have the effect of:
• Reducing your taxable income
• Increasing your tax refund or decreasing the amount you owe
Schedule A deductions Include:
• MIP or PMI (Mortgage Insurance Premium or Private Mortgage Insurance)
• Property Taxes
• Points (Loan Discount)
• Mortgage Interest
Mortgage Insurance Premium or Private Mortgage Insurance is currently deductible (2010 Tax Year) but is scheduled to expire so it will be up to Congress as to whether it will be renewed.
Property Taxes vary from State to State and Region to Region, however they are deductible on your Federal Tax Return. In some cases it may be more valuable to deduct your state sales tax if that figure is higher than your property taxes.
Points are also deductible on your tax return as long as they were used to buy down the interest rate.
Home Mortgage Interest is currently deductible on your Federal Income Tax Return and there has been much debate about the pros and cons of continuing or eliminating this popular deduction.
For most tax filers who are home owners it is usually one of their major deductions on their tax return and has the real effect of benefits that are relatively immediate and quantifiable to them.
Other Schedule A deductions include medical expenses (must be over 7.5% of you AGI), unreimbursed employee expenses (must be over 2% of your AGI), and charitable contributions among others.
Schedule E (Rental Deductions)
Rental Properties are often deducted on Schedule E.
Some landlords elect to run their rentals as a business and use Schedule C—self-employed, some form an LLC or Corporation (S-corp. or C Corp) instead of claiming the income and deductions on Schedule E.
Rental home deductions are one of the few tax shelters left for the moderate income taxpayer. Used in conjunction with depreciation and other write-offs—if you properly purchase and properly lease a property you could see positive tax benefits from this strategy whether filing using a Schedule E or any of the other filing methods mentioned above.
Office in the Home—If you have an office in the home you could depreciate a portion of your home for tax benefits. Be aware that it will be subject to recapture rules at the time of sale—meaning you will not receive the personal residence tax exclusion and/or you will receive a smaller exclusion (you will pay tax on a portion of the gain).
Rental Home Depreciation—You can depreciate your rental property and include the depreciation as an expense on your tax forms. If you decide to sell in the future all of the depreciation would be recaptured and you would face tax consequences at the time of sale.
Capital Gains Taxes:
The current long-term capital gains tax rate is 20% which is somewhat low based on historical standards. There is great debate over whether lower capital gains rates spur development and growth.
Keep in mind that the capital gains tax rates do not apply to real estate whether residential or rental. If you sell your residential property the gain could possibly be excluded if the sales price and your length of stay fall within certain parameters.
The short term capital gains rate for some taxpayers could be as low as 0% depending on whether it is short or long term and the tax bracket that they are in based on their income.
Short term capital gains are taxed at ordinary income rates.
• In 2008–2012, the tax rate on qualified dividends and long term capital gains is 0% for those in the 10% and 15% income tax brackets.
• After 2012, dividends will be taxed at the taxpayer's ordinary income tax rate, regardless of his or her tax bracket.
• After 2012, the long-term capital gains tax rate will be 20% (10% for taxpayers in the 15% tax bracket).
• After 2012, the qualified five-year 18% capital gains rate (8% for taxpayers in the 15% tax bracket) will be reinstated
Sale Of Your Personal Residence:
If you are considering selling your primary home and anticipate making a profit, you may be able to exclude that profit from your taxable income.
There is a $250,000 Exclusion on the Sale of a Main Home for Individuals and (or $500,000 for a married couple) as long as you have owned the home and lived in the home for a minimum of 24 months in the last 5 years. Another way of looking at it is that the home must have been your principal residence.
You can use this 2-out-of-5 year rule to exclude your profits each time you sell or exchange your main home. Generally, you can claim the exclusion only once every two years so use this approach wisely.
Loss on the Sale of a Home:
You cannot deduct or take a loss from the sale of your main home for tax purposes.
You would report a gain on the Sale of Your Home on Schedule D as a capital gain.
If you owned your home for one year or less, the gain is reported as a short-term capital gain. If you owned your home for more than one year, the gain is reported as a long-term capital gain.
How to Calculate Your Cost Basis & Capital Gain:
Similar to calculating capital gains, the process for calculating the gain or loss is similar and involves subtracting your "cost basis" from your selling price.
The process for calculating your cost basis on your main home includes determining all of the following as accurately as possible:
• Purchase price
• + Purchase costs (title & escrow fees, real estate agent commissions, etc.)
• + Improvements (replacing the roof, new furnace, etc.)
• + Selling costs (title & escrow fees, real estate agent commissions, etc.)
• - Accumulated depreciation (for example, if you ever took the office in the home deduction)
• = COST BASIS
And then calculating your profit or loss would be:
• Selling price
• - Cost Basis
• = GAIN OR LOSS
If the resulting number is positive, you made a profit which you could exclude from taxation if the gain was less than $250,000 (or $500,000 if MFJ) and you met the residency time requirements when you sold your home.
If the resulting number is negative, you incurred a loss which would not be deductible on your tax return.
Here is how you would calculate your taxable gain:
• - Maximum or Partial Exclusion
• = TAXABLE GAIN
For example if you had a $600,000 Gain and was married and met the full residency time requirements and your "cost basis" was $25,000 you would have a Taxable Gain of $75,000.
Due to a large portion or in some cases all of your gain from the sale of your principal residence being tax free--buying and selling real estate in the right market and moving up could be a wise and beneficial strategy to you and your family if you did it in the right manner and at the right time.
You must be in financial position to purchase and you should purchase in an appreciating (highly desirable area) community for the strategy to work. Keep in mind that there are also risks with this strategy so purchasing solely to sell a few years later could be a bad calculation if the market or area took a downward fall.
However, if you plan on staying in the area—or if you planned on renting and returning later to meet the residency requirements for exclusion of gain it could possibly benefit you and your family.
Use caution if your goal is to purchase and sell within a few years with tax free exclusion of gain as your primary goal. Be sure to utilize competent and highly effective professionals along with your better judgment if you are seriously considering this strategy.
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About This Article:
The above article was written by Thomas (TJ) Underwood. Thomas (TJ) Underwood is a former fee-only financial planner, a former top producing loan processor and is currently a licensed real estate broker in the state of Georgia.
He is the writer behind The Real Estate & Finance 360 Degrees Series of Books that include The Wealth Increaser, Home Buyer 411 The Smart Guide to Buying Your Home, Home Seller 411 The Smart Guide to Selling Your Home, and Managing & Improving Your Credit & Finances for this MILLENNIUM.
In addition he is also the writer who created The 3 Step Structured Approach to Managing Your Finances, and CREDIT & FINANCE IMPROVEMENT MADE EASY—NEW GUIDE that you can download right now "(at MIMIMAL cost $3.95)" to learn more about his writing style and how you can achieve "more" success in the current economy.
He is the creator of TheWealthIncreaser.com where he regularly blogs about helping consumers improve their credit, finance and real estate pursuits in an intelligent, consistent and proactive manner.
He’s always looking for ways to make intelligent finance improvement happen for those who “sincerely desire” success in their future. He was the first financial planner to coin the phrase "financially alert mind" and he consistently writes in a style that is designed to provide consumers the ability to take control of their lives and achieve great results.
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