SCL Tax Services wants to help you save time and money during the upcoming tax season. You don’t want your tax preparation to be without some kind of plan. Going into the process raw could pose certain hurdles, such as new rules and regulations that you may not be aware of. Here are eight tax planning strategies helping you in 2019 and 2020, and remember, if you need to know tax deadlines or need assistance with business or personal tax preparation, our tax experts including Enrolled Agents and Certified Acceptance Agents are ready.
If you are an entrepreneur over the age of 40 with a team of younger staff members, according to new tax preparation rules, you can now fund a combined “safe harbor.” This means that you can start a 401(k) profit-sharing plan with a six percent match and cash balance-based pension plan to save thousands of dollars in state and federal income taxes. The contribution limits amount to more than $113,000 annually. For smaller tax-deductible contributions, if you are over 40 with younger staff, you might want to consider a 401(k) profit-sharing plan that is cross-tested.
Taxpayers preparing their own taxes can reduce or completely eliminate the new 3.8% Medicare tax on any personal investment income you might have. You can accomplish this by lowering the rent you charge to any buildings and equipment you personally own while increasing your retirement plan and IRA contributions. At the same time, you can gift investment assets to family members in lower-income brackets or give them away to charity while investing in tax-free bonds and reducing capital gains received through harvesting capital losses or tax-free exchanges.
When preparing your taxes, make sure that you report your deductible travel, lodging, and continued education expenses separately from your meal and entertainment expenses. The latter, for instance, is 50% deductible. Also, any meals you expense during staff meetings, outings, or other functions can be classified under “office expenses,” as they are fully deductible.
For taxpayers with cars that are considered medium or above-average priced, and that have an average amount of business miles, you will pay all the operating expenses for that automobile through your practice while deducting the cost of operation instead of the rate of $0.565 per mile. Any auto expenses that you incur through your business should include oil maintenance, gas, and repairs, as well as licenses, taxes, tags, and insurance. Our tax preparation experts encourage you to log your expenses every three months. You can then show any personal usage as income on your W-2 forms.
If you can employ your spouse through your business, you can pay him or her an annual salary of $3,000, for example. This will qualify your spouse for the minimum amount of Social Security Benefits, fully deductible practice travel, fringe benefits, and Child Care Credit. You can also effectively minimize your payroll taxes. However, if your family has two or more children under 13, and your childcare expenses for the year exceed $3,000, you will want to increase your spouse’s salary to equal the amount of childcare expenses annually for a maximum of $6,000 per year.
For any children that you have, you can transfer any appreciated property, such as stocks, bonds, and real estate that you plan to sell to your children who are 19 or older or those aged 19 to 23 who are also full-time students. Your children can then, in turn, sell this appreciated property to receive the capital gain that is taxed as low as 0% if their earned income amounts to more than half of their support. The proceeds can then go to fund educational costs. This strategy will also allow you and your kids to avoid the Medicare tax of 3.8%.
If you have a C-corporation, your business could benefit from a new corporate rate tax of 21%. Pass-through businesses like sole proprietorships, S-Corporations, and Partnerships may be eligible for a 20% deduction that is classified as “qualified business income.” This deduction can save you significantly, but be wary, as new thresholds and limitations could see your business income taxed at 29.6% if you happen to be in the top bracket.
If you have a small business, you may be able to use cash accounting for the purposes of tax preparation. If your business is eligible, this type of accounting lets you micromanage your taxable business income for 2020 to minimize your taxes. If you think your business income will be taxed at the same or lower rates, you can charge recurring expenses you would typically pay early in the New Year on credit cards or pay expenses with checks and mail them a few days before the end of the year. You can also repay some expenses before the year’s end. The good news is that you don’t have to report your income until the year you receive the cash or checks in hand or through U.S. mail.
If you reside in and near the Bronx, Eastchester, Westchester, Mount Vernon and Yonkers, New York, we encourage you to call our tax professionals including the EAs and CAAs at SCL Tax Services. We can help with all your tax planning needs. Whether you need small business tax advice, tax preparation for individuals, tax refund, deductions, or you require tax resolution in the face of an IRS audit, call now for a free tax consultation (15 minutes).