Tax planning isn’t a last-minute scramble!

tax planning

Tax planning is not just a task to tackle hastily as December 31 approaches or a source of panic right before April 15. It is a year-round activity that requires continuous attention and consideration. Let’s explore some personal and business tax issues you can address throughout the year to make your tax planning more effective and personalized.

Personal Tax Matters

Throughout the year, there are five personal tax issues that you can proactively manage:

Timing your income:

Consider delaying the recognition of income where it makes sense. The individual income tax rates have remained steady in recent years, and the tax brackets have seen modest increases. If you anticipate a lower marginal tax rate in the future, it might be advantageous to postpone income, such as discretionary bonuses. On the other hand, if you expect your marginal rate to rise in the coming years, accelerating taxable income when your rate is lower can be beneficial. Assess the timing implications and make informed decisions about when to pay your taxes.

Assessing capital gains and losses:

Regularly review your investment transactions to determine if you have any net gains. If you do, consider selling some losing positions to offset those gains. You can utilize up to $3,000 of net capital losses to reduce your taxable income. Any unused realized losses can be carried forward to future years.

Optimizing charitable contributions:

If you plan to make charitable contributions at the end of the year, consider donating appreciated stock instead of cash. By doing so, you can receive a deduction for the full fair market value of the stock and avoid paying taxes on the capital gains.

Maximizing retirement contributions:

Take advantage of opportunities to contribute to your retirement plan. Individuals aged 50 and over can make “catch-up” contributions to IRAs and 401(k) plans. Seize these options to secure your retirement years.

Understanding the alternative minimum tax (AMT):

Be mindful of the alternative minimum tax, which was initially designed to ensure high-income taxpayers pay their fair share. This complex additional tax can catch many individuals off guard. If you have a relatively high income or significant itemized deductions, particularly related to income or property taxes, consult your tax advisor about the implications of the AMT. It can also apply to those with incentive stock options.

Business Tax Concerns

Here are three business tax issues that warrant year-round attention:

Maximizing retirement benefits:

Make sure you derive the maximum tax benefits from your participation in any retirement plans. Consider contributing to an IRA, even if the contribution is not deductible. By placing funds into an IRA where earnings are tax-deferred, you can save money in the long run.

Managing wages:

As a business owner, you have the flexibility to control when you pay yourself, particularly when it comes to year-end bonuses. It’s essential to understand the relationship between your business’s tax situation and your personal tax obligations to find the optimal solution.

Optimizing deductions:

Ensure that you take advantage of all the deductions you are entitled to. If you use your personal vehicle for business purposes or have a home office, review the relevant rules to maximize your benefits. The IRS allows taxpayers to choose to expense the cost of any Section 179 property and deduct it in the year the property is put into service. Keep meticulous records to support any travel and entertainment expenses.

Don’t Wait Until It’s Too Late

Tax planning is not a one-time event but an ongoing journey that requires attention throughout the year. By addressing personal and business tax matters, you can make informed decisions, optimize your tax position, and potentially reduce your tax liability. Give us a call to tailor your tax planning strategy to your unique circumstances and financial goals.