Tax planning should be an on-going practice of yours, something that take’s place year-round. But now is as good a time as any to consider potential tax saving strategies before the end of the year. It’s not how much you make but how much you get to keep…
For Individuals and Employees:
- First, estimate your 2022 tax liability now while you still have time to evaluate various options.
- Tax-loss harvesting. Here’s hoping many of you started trimming stock positions last January or so. If so, you probably have some losers now that you can sell to help offset the gains from a frothier time. And if not, it still might sense to take some losses this year. Look at your unrealized capital gains/ losses vs. realized gains/ losses., think about your income for this year, what you expect to make next year, and act accordingly. A couple of caveats…Remember the wash-sale rule, you can’t sell a security, take a capital loss on it and then re-purchase that security within 30 days. You also can’t sell a loser in your brokerage account, claim the capital loss, but re-buy it in your IRA.
- RMDs. For gosh sakes, you don’t ever want to not take all of your required minimum distribution. If you fail to take the RMD, you will be subject to a 50% penalty. What you can do, if you are charitably inclined, is take a Qualified Charitable Distribution, which directs your RMD or a portion of it to a qualified charity. This becomes a tax-free distribution.
- Roth IRA contributions or conversions. Even if you are part of an employer-sponsored retirement plan, you can still contribute to Roth IRA, though there are income limitations and contribution limits. Conversions add another wrinkle, you will be taxed at ordinary income tax rates for conversion amounts, sometimes a conversion will push you to the next marginal tax bracket.
- FSAs, Flexible Spending Plans. These are tax advantaged employer sponsored accounts to help you pay for health and/ or childcare expenses. These are “use-it-or-lose-it” accounts, be sure to empty before the end of the year. Ditto for deductibles incurred or not for health, dental or vision expenses.
- Retirement account funding, be sure you have put as much away as you can.
For Business Owners:
- Ditto on item number one above, estimate your final 2022 tax liability to help you evaluate options.
- If you have employees and were impacted by a Covid event, you still might be able to use the ERC tax credit, you can go back three years to claim the tax credit. Some businesses, especially those that received a Paycheck Protection Program loan in 2020, mistakenly believed they didn’t qualify for the ERC. If you’ve already filed your tax returns and now realize you are eligible for the ERC, you can still apply. Like most everything envisioned by Congress and administered by the IRS, the devil is in the details, check with your CPA.
- Push or pull income and or expense depending upon the type of year you are having vs. what you think might happen next year. In some cases, it makes sense to recognize income/ expense this year, perhaps it makes more sense to do next year.
- Want to be able to deduct your state and local taxes? Georgia enacted H.B. 149 on May 4, 2021, becoming another state to give pass-through entities (PTEs), S-Corps and partnerships, the option to be taxed at the entity level, in an effort to help individual residents avoid the federal $10,000 SALT cap that was included in the 2017 Tax Cuts and Jobs Act. Georgia’s new PTE elective tax is applicable to tax years beginning on or after January 1, 2022. The election to be taxed as a PTE is irrevocable, and it must be made annually by the due date for filing the corporate or partnership return, including any extensions
- Compliance. If you are a business owner, get W-9s now. You are required to provide and submit 1099 forms to those who you paid more than $600 over the tax year. Don’t wait until the last moment, the end of January.
- For S-Corp owners, be sure to run health insurance premiums through payroll.
- Deductibility of gifts is capped at $25 per person.
- Look at establishing an HRA, health reimbursement arrangement, you can deduct qualified medical expenses up to $5,450 for individuals and $11,050 for families this tax year, for you and your employees.
- Keep good records. Anything that might reasonably be considered a business deduction may very well be deductible. Keep a mileage log of all business vehicle use, keep receipts of anything remotely in the business realm.
The above is just a sampling. Our tax code is numbingly complex and frustrating. Check with your CPA and/ or fee-only Certified Financial Planner™ this week. You and your individual situation dictates what might or might not work, so get to work and keep as much of your hard-earned money as you legally can.