Bonfire Financial has a Podcast!
We are excited to announce that we are launching The Field Guide Podcast! Hosted by the CEO of Bonfire Financial, Brian Colvert, CFP®, each episode will bring you ideas to simplify, navigate, and elevate your financial life. We really hope you enjoy it! Listen anywhere you stream Podcasts!
Episode 1: Navigating Taxes with Henry Ip, CPA
We are kicking off our first episode of the Field Guide Podcast, with Henry Ip, CPA.
Henry Ip is a seasoned tax professional with a wealth of experience spanning over 17 years in the dynamic field of Tax Advisory and Compliance. Currently serving as a tax partner at Biggskofford PC in the Colorado Springs office, Henry specializes in providing strategic tax compliance and planning services to a diverse clientele, including small public and middle-market private companies and their owners.
Henry shared invaluable insights on tax planning, financial strategies, and considerations for diverse situations. This blog post aims to navigate through the key points of the discussion, shedding light on Henry’s recommendations for navigating taxes in various aspects of financial planning.
Planning for Taxes: Looking Beyond the Present
The conversation began with the crucial importance of planning for taxes. Henry stressed the need to look beyond the current year, emphasizing that tax planning involves not just minimizing taxes for the present but also preparing for future tax implications.
Roth Conversions and Qualified Charitable Distributions: Navigating Retirement Accounts
Turning to retirement accounts such as 401(k)s, the discussion explored Roth conversions and Qualified Charitable Distributions (QCDs). Henry suggested a strategy for retirees comfortable with their financial situation: using Required Minimum Distributions (RMDs) for tax-free donations to charities, meeting RMD requirements while contributing to qualified causes.
Managing Rental Properties: LLCs for Liability Protection
For individuals with Airbnb properties or rental units, Henry stressed the importance of managing personal liability by setting up Limited Liability Companies (LLCs). While not directly impacting income tax, an LLC provides essential liability protection.
LLCs and Tax Implications: Balancing Liability and Tax Benefits
Addressing the common question about the impact of LLCs on income taxes, Henry clarified that, primarily, setting up an LLC benefits individuals in terms of liability protection. However, he emphasized the significance of proper setup and ownership structure.
Selling a Business and Tax Implications: Early Planning is Key
The conversation delved into selling businesses and the associated tax consequences, emphasizing the importance of early planning. Henry recommended considering tax strategies two to five years before selling, including converting ordinary income to capital gains and exploring options for deferring income recognition.
The Importance of Early Planning: Restructuring for Tax Efficiency
Henry highlighted that early planning is essential for restructuring a business to make it more tax-efficient. This proactive approach can significantly impact the tax burden and provide sellers with various options to optimize their financial outcomes.
Filing Extensions and Audit Risks: Dispelling Myths
On the topic of filing extensions and audit risks, Henry dispelled the myth that filing an extension increases the chances of an audit. Extensions provide legal time extensions for filing, reducing stress and allowing accurate information gathering for returns.
Identity Protection PINs: Safeguarding Against Fraud
Touching on identity theft and the IRS’s Identity Protection PIN (IP PIN) program, Henry recommended applying for an IP PIN annually to prevent fraudulent tax filings, providing an additional layer of security against identity theft.
Gifting Strategies: Leveraging Exclusions for Tax-Free Gifts
Discussing client inquiries about gifting money to children, Henry suggested leveraging the annual exclusion amount for tax-free gifts. He emphasized understanding exclusion limits and considering options like 529 plans or trusts based on individual circumstances.
Maximizing Annual Exclusions: Coordinating Gifts for Maximum Benefit
Henry clarified that individuals can maximize the annual exclusion by coordinating gifts between spouses and recommending trusts for beneficiaries who may need additional financial management.
529 Plans and Tax Implications: Exploring Options for Unused Funds
The discussion on 529 plans addressed scenarios where the beneficiary doesn’t use the funds for qualified education expenses. Henry explained options such as changing beneficiaries, using funds for personal education, or exploring exceptions like disability or death.
Tax Implications of 529 Plans: Minimizing Taxes through Strategic Decisions
Henry clarified that taxes and penalties are applied only to the income portion of 529 plan withdrawals for non-qualified expenses. He provided insights into avoiding taxes by changing beneficiaries or leveraging exceptions.
Remote Work and Tax Deductions: Navigating Changes Introduced by TCJA
The conversation concluded with a focus on remote work and tax deductions, highlighting changes introduced by the Tax Cuts and Jobs Act (TCJA) of 2017. W-2 employees working from home can no longer deduct home office expenses, necessitating strategic approaches for tax optimization.
Strategies for S-Corp Owners: Navigating Tax Compliance
For S-Corp owners, Henry recommended a reimbursement approach through an accountable plan to cover business-related expenses, ensuring compliance with tax laws and optimizing deductions for business owners.
Conclusion: Navigating the Tax Landscape
Henry Ip’s expertise provided a comprehensive overview of tax planning strategies for various financial scenarios. From retirement accounts to rental properties, selling businesses, and gifting strategies, the conversation covered a wide range of topics. As individuals navigate the complexities of the tax landscape, early planning and strategic decision-making emerge as key factors in optimizing financial outcomes.
Whether you’re a business owner, retiree, or someone looking to enhance your financial literacy, the insights from Henry offer valuable guidance for making informed financial decisions. Navigating taxes is a journey, and with the right knowledge, you can confidently chart a course to better understand taxes.
We hope you enjoyed this episode. Be sure to like, review, and subscribe wherever you listen!