Sarah Sullivan breaks down three costly tax mistakes investors make in Q4: skipping CPA advice before selling (missing 1031 exchanges or deferred sales trusts), selling assets before 12 months and paying short-term capital gains rates, and rushing year-end closings instead of waiting until January to implement tax strategies.
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All right, continuing from Monday's email, today we're talking about the top three mistakes that our CPA sees their clients do in Q4. So turn your ears on, listen up, make sure you're not doing one of these. And here we go. All right, the top three mistakes. One is not talking to your CPA before you do an action. So especially if you're looking to sell an investment, exit an investment, sell a company, exit a company, sell some property, talk to your CPA beforehand before you execute the sale. Because oftentimes people complete it and then they come to their CPA or they come to me and they say, oh, Sarah, I just sold some real estate, I want a 1031 exchange into something. And I go, did you already get the money from the sale? And they say, yeah, you can't 1031 exchange now, it's too late. You have to set that all up before your sale. If you want to use a Delaware, sorry, a deferred sales trust, you have to set that up before you sell your company. You can't say, oh, look, I sold my company, I got all this money. What's a good way to defer the taxes on the gain? You have to set it all up before the sale of your company. So get a strategy beforehand. Talk to your cpa, talk to someone that you invest with to see what they can help you with before you pull the trigger. So that's number one is not reaching out before the exit happens. So make sure you talk to people as early as possible. The second biggest mistake our CPA sees people do is sell short, meaning hold things for less than 12 months. Then you pay short term capital gains tax, which is higher than long term capital gains tax. So if you can hold something 12 months or longer, you pay a lower percent in taxes. The long term capital gains is lower. So if you're, you have some real estate and you've had it for 10 months, wait two more months, sell it after 12 months. If you've had stock and you've had it for a few months, I mean, if you don't think it's about to plummet, hold it for a few more months in order to cross that 12 month stress threshold. So holding assets longer than 12 months will put the put you in a lower tax rate on the gains that you've experienced with that investment. So that was number two. And number three is trying to rush a sale or an exit to complete in this calendar year. So this is another big mistake our CPA sees is people who are like, oh, it's December, I need to quickly exit these investments, sell my company before the end of the year, things like that. Usually, tax strategy has to happen in the same year that you exit, make a sale, you have to reinvest or do the strategy in that same calendar year. So if you exit something in December, it only gives you a couple weeks to execute a strategy to defer taxes or come up with a tax plan around that. So instead, if you're about to sell a company or property, postpone it to the first week of January because. Because if you make that sale or exit in the first week of January, then you have the entire 2024 to execute a tax strategy or reinvest and all that kind of stuff with the money that you've made from that sale. So those are the top three mistakes. Not reaching out soon enough, holding short instead of long, and then trying to rush something to complete in Q4 instead of making it complete in January so that you have a longer time to execute your tax strategy that your CPA plans out for you.
