There are a number of financial and tax topics we review with clients as the end of the year approaches. There are considerations for both individuals and business owners that can minimize tax liability and/or reduce your taxable income for the year, most of which need to happen before December 31st. Like most tax issues, there are many variables. One is whether you anticipate more or less income next year. Another is that there is the potential that tax rates will increase in 2022; in which case you may actually want to show more income and pay more taxes this year while the rates are lower. As with everything we recommend, you need to discuss your specific situation with a tax professional. If you don’t already have a proactive, conscientious accountant looking out for you, then give us a call!
• Now’s the time to check your payroll withholding for the year to make sure that what you’ve paid to the IRS is close to what your liability for the year will be – to make sure you won’t be liable for interest and penalties.
• Check with your financial advisor – since only so much can be written off each year, you may have capital losses or prior year capital loss carryovers you can use to offset gains recognized this current year.
• Older clients who must take the annual Required Minimum Distribution (RMD) from their IRA, may find it advantageous to make a charitable contribution with that money rather than pay additional taxes.
Business owners
Here are a few potential steps you should consider in 2021 to reduce your taxable income:
• If you have any big purchases planned in the coming months, you could pay for them in 2021 to increase your expenses and reduce your taxable income.
• Many owners don’t realize that you can claim appropriate credit card purchases as business expenses in 2021 even if you don’t pay the bill until after the New Year.
• If you’re considering bonuses for employees, pay them prior to December 31 to further increase your expenses and reduce taxable income.
Each individual tax suggestion makes sense but taken together it gets confusing; there are a lot of moving parts, which is why you need guidance from a good accountant. Some tax preparers are just putting numbers in boxes at the end of the year. Valerie, Christy, and the rest of the team at Emerald Financial take the time to understand your tax situation and will definitely check in with you about tax planning during the year. Contact Emerald today!