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tax savings strategies

Tax Planning 2023 Tips

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Tax planning for the year 2023 is essential to minimize your tax liability and make the most of available tax benefits. Here are some general tax planning strategies to consider, though it’s important to consult with a tax professional for advice tailored to your specific situation:

1. Maximize Retirement Contributions:
– Contribute the maximum allowed to your retirement accounts, such as 401(k), 403(b), or IRA. These contributions are often tax-deductible and can reduce your taxable income.

2. Take Advantage of Tax-Efficient Investments:
– Invest in tax-efficient assets like index funds, ETFs, and tax-efficient mutual funds to minimize capital gains tax.

3. Consider Tax-Loss Harvesting:
– Review your investment portfolio for opportunities to sell underperforming assets and offset gains with losses to reduce your tax liability.

4. Utilize Tax Credits:
– Be aware of available tax credits, such as the Earned Income Tax Credit, Child Tax Credit, and education-related credits, to lower your overall tax bill.

5. Charitable Contributions:
– Make tax-deductible charitable donations to qualified organizations. Keep records of your contributions for tax purposes.

6. Plan for Education Expenses:
– Utilize tax-advantaged accounts like 529 plans to save for education expenses, and take advantage of education tax credits if applicable.

7. Capital Gains and Dividend Income:
– Be mindful of the tax rates for capital gains and dividend income and plan your investments accordingly.

8. Consider a Roth Conversion:
– Evaluate whether it makes sense to convert traditional retirement accounts to Roth IRAs, which may provide tax-free withdrawals in retirement.

9. Health Savings Accounts (HSAs):
– Maximize contributions to HSAs if you have a high-deductible health plan. Contributions are tax-deductible, and withdrawals for qualified medical expenses are tax-free.

10. Estate Planning:
– If you have a large estate, consult an estate planner to minimize estate taxes and ensure a smooth transfer of assets to your heirs.

11. Business Tax Planning:
– If you own a business, explore tax strategies like the Qualified Business Income Deduction (Section 199A) and consider entity selection to optimize your tax position.

12. Keep Records:
– Maintain accurate records of income, expenses, and all financial transactions to support your tax return and potential deductions.

13. Review Withholding and Estimated Taxes:
– Ensure that your withholding and estimated tax payments align with your expected tax liability to avoid underpayment penalties.

14. Stay Informed:
– Keep up-to-date with changes in tax laws, which may occur annually. Tax planning should adapt to new regulations and opportunities.

15. Consult a Tax Professional:
– Consider seeking advice from a tax professional, such as a CPA or tax advisor, to create a personalized tax plan tailored to your financial situation.

Remember that tax planning should be a year-round effort, not just something to think about at the end of the year. By being proactive and staying informed about tax laws, you can potentially save money and reduce your tax burden.

4 Tips on How Small Businesses Can Reduce Taxes

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As a small business owner, tax liability is the money you owe the government when your business generates income. With changing laws and gray areas regarding deductions, exemptions, and credits, it’s no wonder small business owners rank taxes at the top of the list of the most stress-inducing aspect of business ownership. To reduce that stress, taxes shouldn’t be something to focus on only at year’s end. Use these tips on reducing your business tax year-round and see your taxes and stress level decrease…

1. Business structure

Your company’s business structure is how it is organized – it answers questions like who is in charge, how are profits distributed, and who is responsible for business debt. The most common business structures are:

  • Sole proprietorships have one owner who takes all profits as personal income. The owner is personally liable for any business debts.
  • Partnerships are structured like sole proprietorships but can have an unlimited number of owners.
  • C corporations have unlimited shareholders who each own part of the company. Profits are distributed as dividends between them. Owners are not personally liable for business debts.
  • S corporations are structured like C corporations, but the number of shareholders is capped at 100.

In addition to affecting how a business operates, business structure impacts how much a company pays in taxes. The U.S. tax code is complex and includes four main tax categories:

  • Income tax – paid on profits
  • Employment tax – employee Social Security and Medicare contributions
  • Self-employment tax – Social Security and Medicare contributions for self-employed individuals
  • Excise tax – special taxes for specific goods and services like tobacco, alcohol, etc.

A sole proprietorship or partnership is a good idea for businesses wanting tax simplicity (legal protection discussions are important here as well). For those with less than 100 owners, an S corporation might be the right fit and best tax option. Again, business structure and tax laws are complex and are best determined by a qualified, experienced accountant.

2. Net Earnings

Net earnings (i.e., net income or profit) is the gross business income minus business expenses. Regardless of the business, it begins with gross income (the income received directly by an individual, before any withholding, deductions, or taxes), and allowable expenses are deducted to arrive at net income. How this figure is calculated is dependent upon business structure.

Net earnings are used to calculate business income taxes. Again, the calculation process differs slightly for different business structures. It is best to seek a professional to help with net earnings calculations for the proper calculation and maximum legal deductions.

3. Employ a Family Member

One of the best ways for small business owners to reduce taxes is hiring a family member. The (IRS allows a variety of options for tax sheltering. For example, suppose you hire your child, as a small business owner. In that case, you will pay a lower marginal rate or eliminate the tax on the income paid to your child. Sole proprietorships are not required to pay Social Security and Medicare taxes on a child’s wages. They can also avoid Federal Unemployment Tax Act (FUTA) tax. Consult a trusted accounting professional for details about the benefits of hiring your children or even your spouse.

4. Retirement contributions

Employee retirement plans benefit employees, but they can also be good for your small business. Employer contributions to an employee retirement plan are tax-deductible. They can also carry an employer tax credit for setting up an employee retirement plan. Again, this is a task an accountant can handle for you. They can guide you on retirement plan choices based on your business’s situation, employees, and other factors.

As a small business owner, you can deduct contributions to a tax-qualified retirement account from your income taxes (except for Roth IRAs and Roth 401(k)s). Sole proprietors, members of a partnership, or LLC members can deduct from their personal income contributions to their retirement account.

As with any tax situation, consulting your trusted accounting professional is always best. They are up to date on the latest tax laws, information, and allowable deductions. By being aware of ways your small business can reduce taxes, you can bring these topics up with your accountant, discuss the best options for you, and be prepared long before tax time rolls around.

This only scratches the surface when it comes to tax planning and minimizing taxes while building your wealth. Our team will cater to your goals with a full discussion and tax planning session.

Contact our tax professionals to learn more about how you can control tax exposure for your small business.