There is no doubt in my mind that as a taxpayer, you will like to know few tax tips that will put some money back into your pocket or save you some tax dollars. These basic strategic tax tips can go a long way to put money back into your pocket. Please enjoy this journey with me, as I walk you through what IRS will not what you to hear!!
Accelerate Deductions: Taxpayers and Small Business Owners should consider taking advantage of deductions that will minimize their tax liability. A good example for small business will be acceleration of bill payments in December 2021 to reduce 2021 taxable income. Also, business owners can acquire fixed assets they need for business purposes at year end and take a full deduction if eligible for Bonus Depreciation or Section 179 Depreciation. Individuals can also make January 2022 mortgage payments or State & Local estimated tax payments in December 2021 to take advantage of these deduction on 2021 tax return.
Let’s Defer some income: Do you ever consider deferring your 2021 income to 2022? For example, if you operate a small business that uses the cash method of accounting, you can postpone taxable income by waiting until late in the year to send out some invoices. But Congress is currently discussing tax increases for higher-income individuals to help fund various spending initiatives. So, some people could be in a higher tax bracket next year. If you’re facing this situation, consider talking to us ASAP.
Education Savings Accounts: The popular Section 529 plans and Coverdell education savings accounts are all compound tax-free when used for qualified higher education expenses. Taxpayers also get State tax benefit by deducting contributions to Education Savings Accounts.
Max out your Pre-tax Retirement Contributions: Taxpayer with employer 401(k) plans should maximize their yearly pre-tax contributions (if possible) through payroll deductions. Taxpayer that are self-employed should consider Solo 401(K), SEP IRA or SIMPLE IRA plans. Taxpayers can also use pre-tax dollars e.g., IRAs, 401(k)s and other qualified retirement plans, which generally allow penalty-free withdrawals for college tuition. Taxpayer may also want to consider converting a Traditional IRA to a Roth IRA if you expect to be in the same or higher tax bracket in the future due to proposals being discussed by Congress.
Gift Tax Annual Exclusion: Take advantage of the $15K per taxpayer annual gift to children, nephews, nieces, step children, etc. This can be contributed to S.529 plans. In some States, e.g., PA, GA, etc., the 529 contributions don’t have to be made for the benefit of the taxpayer’s children.
Take advantage of any unrealized losses on your Investments: To the extent you have capital losses from earlier this year or capital loss carryovers from prior years, selling appreciated investments this year won’t result in a tax hit. In particular, sheltering net short-term capital gains with capital losses is a tax-smart move because net short-term gains would otherwise be taxed at ordinary income rates of up to 37%.
Donate to Charity from Your IRA: IRA owners and beneficiaries who have reached age 70 ½ are permitted to make cash donations totaling up to $100,000 annually to IRS-approved public charities directly out of their IRAs. You don’t owe income tax on these qualified charitable distributions (QCDs).
Life Insurance Cash Values: Life insurance cash value is generally tax-free when used for qualified higher education expenses.
Consider Donor Advised Fund: This is good tool to maximize your charitable donations. This is a private fund administered by a third party for charitable donations, you get full deduction now, while making the donation over your preferred period to the nonprofit organization.
Roth Conversions: Please give us a call so we can run one or two scenarios for your eligilbility of Roth Conversions. This is a strategic tax savings that will put some future cash in your pocket during retirement period.
Consider the S-Corp Strategy: A unique tax structure only found in the US. We are here to help you. Please give us a call and we let you know if this entity structure is better for you.
Charitable Donations: Taxpayers that itemized can take advantage of the 100% of AGI deduction for charitable donation. The CARES Act lifted the 60% of AGI cap on charitable donations.
R&D Credit: Taxpayer don’t have to be engaged primarily in research and development to qualify for the R&D, please give us a call so we can discuss and see if you qualify for the R&D Credit.
Long Term Capital Gain: Depending on a taxpayer’s taxable income, you can take advantage of the 0% or 15% (lower tax rate) on your capital gain. This is a good time to consider selling capital assets, if this will result in 0% capital gain tax rate
Estimated Tax Payments: It is also a good time to check if estimated taxes were properly made to avoid any next year underpayment estimated tax penalty.
Estate Tax Planning: When last do you consider estate tax planning? Do you currently have a “Will” to protect your family from probate? God forbids anything happens to you. No time to waste anymore. Please reach out to us for your Estate tax planning. Remember our goal is to make sure when our clients are successful, we are successful.
20% QBI Deduction: Small business owners like sole proprietors, S-Corps, partnership, LLC may be entitled to a deduction of 20% of their qualified business income, although the deduction may be limited based on W-2 wages paid, nature of business and unadjusted basis of the business fixed asset.
Tax Planning: Someone said: “The main thing is to keep the main thing, the main thing”. The most important of all the above tips is “strategic tax planning”. Strategic tax planning and projections will always show a taxpayer area to minimize tax and maximize deductions or take advantage of tax credits. Please “Show us a taxpayer that does tax planning four times a year and we will show you how to put some money back in your pocket”.
Few housekeeping items to consider for 2022:
- Simple Plan Max Contribution is now $14,000 up from $13,500 in 2021
- Solo 401(K) Plan Max Contribution is now $61,000 up from $58,000 in 2021. $67,500 for taxpayers who are 50 and older
- SEP IRA Plan Max Contribution is now $61,000 ($67.5K for 50 plus taxpayers), up from $58,000 in 2021. (The SEP annual compensation for 2020 is $305,000)
- Unfortunately, no increase for Traditional or Roth IRA Contribution. They will remain at $6,000 for 2022 ($7,000 for taxpayers who are 50 and older)
- Cash Balance Plan Max Contribution is now $245,000 up from $230,000 in 2021
- HSA Contribution for single taxpayer increase from $3,600 in 2021 to $3,650 in 2022. Family coverage will increase from $7,200 to $7,300
- IRC S.125 FSA contribution limits will increase from $2,750 to $2,850 in 2022
- 100% meals and entertainment expenses that are paid or incurred in 2021 or 2022 for food/beverages from a restaurant.
- A digital asset (e.g., cryptocurrency) acquired on or after January 1, 2023, is a covered security and brokers will have to report a customer’s basis and gain/loss when the customer sells or exchanges the digital asset.
- Consider Cost Segregation Benefits: Please give us a call to discuss if Cost Seg will be beneficial to you in 2022.
- Digital asset is now treated as cash for $10,000 reporting purposes (i.e., a person engaged in a trade or business who, in the course of that trade or business, receives more than $10,000 in cash (in one or more related transactions), must file an information return with the IRS and furnish the payor with a statement.