The holiday season is upon us with all of its festivities, cheer, and delicious food. However, this also means that the end of the year is approaching, so now is the time to begin using some simple tax strategies to ensure you can reap the biggest benefit and minimize your taxes.
At Gonzalez & Arrambide, Inc. our accountants have a thorough understanding of tax laws, and are up-to-date on current regulations, which means they can help to reduce your payments and devise a year long plan that will get your personal or business financial matters in proper order.
So as we come closer to the end of the year consider using the following 9 tax tips for both individuals and small businesses.
Individual Tax Tips
1. Accelerate Deductions and Defer Income
Consider deferring bonuses, consulting income or self-employment income and accelerating deductions from state and local income taxes, interest payments, and real estate taxes.
2. Bunch Itemized Deductions
Because many expenses can be deducted only if they exceed a certain percentage of your adjusted gross income (AGI), bunching itemized deductions can help you reach that number.
3. Make Up a Tax Shortfall with Increased Withholding
If you’re in danger of an underpayment penalty, try to make up the difference by increasing withholding on your salary or bonuses.
4. Leverage Retirement Account Tax Savings
Contributions to your retirement accounts reduce taxable income at the time that you make them, and you don’t pay taxes until you take the money out at retirement.
5. Reconsider a Roth IRA Rollover
Converting a traditional IRA into a Roth IRA allows you to pay tax on the conversion in exchange for no taxes in the future (if withdrawals are made properly).
6. Make a Charitable Contribution
Cash contributions must be documented to be deductible, and a charitable deduction of more than $500 in donated property, or $250+ for a car donation require certain forms.
7. Give Directly from an IRA
Using your IRA distributions for charitable giving could save you more than taking a charitable deduction on a normal gift.
8. Zero Out AMT
You can “zero out” your alternative minimum tax (AMT) by accelerating income into the AMT year until the tax you calculate for regular tax and AMT are the same.
9. Take Advantage of Historically Low Interest Rates
An appreciating market and historically low rates create the perfect atmosphere for estate planning.
Business Tax Tips
1. Make an S-election on an LLC you set up this year and use it for operations.
There are new IRS regulations that allow for this retroactive classification at year’s end. However, don’t forget you are required to take some payroll for yourself out of the company if you make this election.
2. Set your payroll amount.
S-Corporation owners or newly elected LLC S-Corps must complete their payroll before year’s end.
3. Put your kids on the payroll.
This overlooked strategy allows you to pay your children for actual services they provide your business. Use a separate business account that complies with regulations and make sure follow the proper procedures and have bank accounts for the children.
4. Put your spouse on the payroll.
You should consider this only if your spouse wants to contribute money to your company 401(k) for tax-planning purposes.
5. Implement a 401(k) before year’s end.
A properly designed 401(k) can be self directed and utilized in real estate transactions, hard-money lending, and small business investments.
6. Start establishing your entity now.
Consider the first of the year as the perfect time to file articles.
7. Close on that rental property.
By reclassifying the assets of a rental property into real and personal property, you can defer thousands of tax dollars. Make sure you take into account the real estate classification and other passive income you may be able to deduct this segregated depreciation against.
8. Make a ROTH conversion.
Consider converting your traditional IRA or 401(k) to a Roth IRA, and start paying taxes at a lower rate without paying taxes on your withdrawals in the future.
9. Push income or expenses to the proper year.
You’ll want to push income to the next year and accelerate expenses to the present year.
Gonzalez & Arrambide, Inc. wishes you a wonderful holiday season.
Our accountants and Gonzalez & Arrambide, Inc. work hard year round to make sure that the holiday season means a time of relaxation and financial prosperity; rather than a crunch time rush full of frustration and uncertainty.More