Tax Planning Strategies for Individuals and Businesses Maximizing Deduction
Although everyone’s tax picture is unique, there are a number of common strategies that can help minimize your income taxes. Staying up to date with deductions and credits as they emerge is vital.
One way to minimize your taxes is to bunch your itemized deductions into one year. This strategy can allow you to exceed the standard deduction thresholds and claim a higher deduction.
Depending on how you organize your expenses, it’s possible to save a substantial amount in taxes. By bunching certain expenses together, you can increase your chances of exceeding the standard deduction amount and itemizing deductions.
Depreciation is a valuable business tax planning strategy that allows you to write off property over time, reducing your taxable income. In some cases, it’s more advantageous to use accelerated depreciation methods like MACRS, which allow you to take a larger deduction in the first years of ownership and a smaller write-off later on.
Other business tax planning strategies include choosing the proper entity, utilizing employee benefits and compensation, and tracking and maintaining assets. It’s also important to stay up-to-date on new tax laws and regulations to identify new tax-saving opportunities. Moreover, hiring a professional tax planning services expert can help you optimize your business financial performance and maximize your deductions. They can provide you with expert guidance and assistance, ensure compliance with regulations and help you stay ahead of new deduction opportunities.
Business Interest Deductions
Before the Tax Cuts and Jobs Act, interest expense was a fully deductible business expense. Now, the law limits this deduction, except for small businesses and agribusinesses that elect to deduct floor plan financing interest. As a result, businesses may need to reconsider their financial and tax positions.
To minimize the impact of the business interest limitation, consider accelerating income toward the end of the year. This strategy works for pass-through entities (partnerships, S corporations, and sole proprietorships), since any excess interest expense is passed through to the partners and offset against their individual taxable income.
Another option is to prepay expenses at the end of the year, as long as they are eligible expenses and they do not exceed IRS limitations. Be sure to consult with your accountant before executing this strategy. They can help you identify eligible expenses and determine if you are at or near your limit. They can also help you understand the impact of the new law on your business.
Individuals can get valuable tax savings by making charitable donations of cash and noncash assets, including long-held appreciated securities and real estate. The fair market value of the donation can be deducted up to 60% of adjusted gross income for itemizers.
Individual taxpayers can boost their deduction by bunching donations together into one year. This strategy may help them exceed the standard deduction and increase their ability to claim other itemized deductions like medical expenses, 529 plan contributions and home interest expense.
Smart tax planning for individuals and businesses can help them minimize their taxes and put more money in their pockets. By working with a qualified financial professional, you can devise strategies that fit your unique situation and goals. A strategic approach now can reap bountiful rewards in the future.
Investment gains are taxed at a higher rate than ordinary income, but there are strategies that can help you mitigate capital gains taxes. One strategy is known as “tax gain-loss harvesting.” It involves selling investments that have lost value and using those losses to offset taxable gains. In addition, unused investment losses can be carried forward indefinitely to offset future taxable gains and ordinary income.
For businesses, the right business entity structure can minimize the amount of taxes owed come Tax Day. Then there are strategies like leveraging government credits and incentives, bunching expenses (like charitable donations) or utilizing foreign tax credits.
Individuals can also reduce their lifetime tax rate by deferring compensation from high-tax working years into low-tax nonworking years, such as retirement. And a tax-efficient strategy for leaving assets to heirs is to use a qualified plan, like a Roth 401(k) or IRA. All of these strategies require careful planning and should be implemented with an advisor who understands your complete financial picture.