Situation:
Introducing Ethan, a skilled anesthesiologist at the renowned Mayo Clinic in Rochester, Minnesota. At 48, Ethan is seeking ways to optimize his financial situation.
Ethan’s annual income as an anesthesiologist stands at $670,000. Located in Rochester, Minnesota, Ethan faces a tax rate of 43%. Before now, he has not thought much about his taxable income, but with two children attending prestigious universities, he is now looking at ways to pinch every penny he can.
Ethan talks with his financial planner about the budgeting issues. Surprisingly his financial planner believes that one of the avenues they can take to free up more cash in the coming years is to reduce Ethan’s taxable income. This tax mitigation strategy will help Ethan by lowering his taxable income to help offset the educational expenses for his children.
Solution:
Ethan is considering implementing the Small Advantage – ADU – Individual strategy to maximize his tax benefits.
Now, let’s delve into the specifics of Ethan’s tax-saving plan. Ethan plans to purchase one unit under Section 168(K) for $300,000. To secure the unit, Ethan provides a down payment of $60,000 and a loan provided by the manufacturer for $240,000.
Through this strategy, Ethan can claim substantial deductions over five years. In the first year, Ethan can deduct $240,000, followed by deductions of $15,000 in each subsequent year, totaling $300,000 in deductions.
By strategically utilizing these deductions, Ethan can significantly reduce his taxable income and, ultimately, his tax liability.
Result:
Before considering the deductions, Ethan’s taxable income is $670,000, resulting in a tax obligation of $288,100. However, after applying the deduction, Ethan’s taxable income is adjusted to $430,000, reducing his tax obligation to $184,900.