Tony's Tax Tips

The Tax Chess Board Part 11

This article originally appeared in the Pasadena Star News on July 1, 2006.

THE TAX CHESS BOARD – Learning about sophisticated tax planning is like learning to play a game of chess. Your opponent, the Internal Revenue Service, has all of their tax chess pieces in place on the tax chess board and is very experienced at playing the tax chess game. YOUR TAX GOAL - Everyone's goal should be to earn as much income as they possibly can and increase their net worth, but pay the least amount of tax allowed by law. The difficult part is legally paying the least amount of tax on all the income earned.

C. Anthony Phillips, CPA

YOUR CHESS PIECES - If you are employed and only receive a paycheck, you have one pawn on the tax chess board-you. You have no options. Your employer calculates the amount of tax due, withholds it from your paycheck and sends it to the IRS. You can't play a good tax chess game with only one pawn.

TAX PLANNING STRATEGIES - The best tax planning may not necessarily be the maximization of your itemized deductions, such as medical expenses, state income or county property taxes, interest, charitable contributions or miscellaneous itemized deductions.

SOME OF YOUR BEST CHESS PIECES – One of your financial objectives should be to increase your net worth without paying any income tax. This may be accomplished by controlling the timing and flow of your taxable income. You can attain this by investing in retirement accounts, common stocks and real estate. While investment as well as tax considerations may influence your decisions, you are free to choose when to sell your common stocks and real estate.

TAX CONSEQUENCES OF YOUR BEST CHESS PIECES – The best chess pieces allow for the deferment of income and are either taxed at lower tax rates or are excluded from tax. You may just have to rearrange your life to get the best chess pieces into the game but the tax benefits will be worth it.

LAST TAX TIP FROM TONY – This will be my last article. My 4th grade school Nun from the Sister of Saint Joseph Order once told me, "If you have nothing further to say Mr. Phillips, be silent". While it's been taken out of context, it seems appropriate here. You may view all of the previous articles at www.downstreamexchange.com under the Tax Tips upper navigation tab.

Tony Phillips, CPA has a certified public accounting firm, Phillips & Company in Pasadena and is President of Downstream Exchange Company which helps investors save taxes when they sell their investment property.

The above is not intended to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer.