Tax Planning - Save tens of thousands of dollars
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Tax Shark works with taxpayers and business owners to provide you a legal way to shave thousands of dollars off your tax bill.
Tax Planning for Individuals
What is tax planning? Tax planning is when your financial situation is being analyzed from a tax perspective. The purpose of it is to have you pay fewer taxes from your income than you did in your previous years. Tax planning starts with the financial plan which is prepared with the main goal to reduce your taxes to the minimum.
Tax planning covers certain objectives which include the amount of the income, the time it was received, the purchases made, and planning for expenses in the future. Another important part of the tax planning is your investments and types of retirement plans that add to the tax filing status and deductions to have the best outcome possible.
One of the most popular ways to save on taxes is to contribute to the retirement plan. When you contribute money to a traditional IRA, you can reduce your gross income up to $6,500. In 2018, if you meet all the qualifications and you are younger than 50 years old your contribution can be up to $5,500, but if you are older than 50 years old your contribution can be up to $6,500. This contribution will lower your income before taxes and will be growing tax-deferred until the time you are ready to retire.
Another plan that is often used for the retirement and for reducing tax liability is 401(k) plans. These plans are often opened by large companies that hire many employees. Employees that participate in these plans can defer income from their paychecks into the 401(k) plan directly. The contribution limit to these plans are much higher than the contributions to a traditional IRA. In 2018, the contribution for someone under age 50 can be up to $18,500; and for someone older than 50 it can be up to $24,500. This way you are paying fewer taxes now and saving for your future at the same time.
Tax gain-loss harvesting is one more way to manage your investments and do some tax planning. The losses from your portfolio can be used to offset an overall capital gain. But there are some rules that apply how you use the losses. Short-Term loss or long-term loss are used to offset the same kind type of capital gain first. For example, if you had some long-term loss, it will be used to offset long-term gain before it can be used against short-term gain.
Short-term gains are taxed at the same tax bracket as ordinary income, but long-term gains are taxed based on the tax bracket. If the taxpayer is in the lowest marginal tax bracket of 10% and 15%, his taxes are 0% on the long-term gains. Next, if the taxpayer is in the tax bracket of 25%, 28%, 33% or 35%, his taxes on the long-term gains will be 15%. And at last, if the taxpayer is in the highest tax bracket of 39%, then his taxes on long-term gain is 20%.
Capital losses can also be used to offset ordinary income. If a taxpayer has capital losses left over after he offset the capital gains, he can use up to $3,000 of capital losses to reduce his ordinary income.
Tax Planning for Business Owners
Many business owners do not have the same advantages on the tax breaks as individuals due to their high-income levels, but that doesn’t mean legal tax reduction doesn’t exist for them. With careful tax planning, knowledge, and creative people in the highest tax brackets can save more on taxes than an average American.
Two-thirds of millionaires in the U.S. are self-employed or small-business owners. Many other people run small businesses in addition to their regular jobs. All these taxpayers have abundant opportunities to save on taxes using tax planning strategies that are not subject to the standard income limitations.
One of the most common tax-reduction opportunities is the small business retirement plan. Normally, the IRS does not include money contributed to the retirement plans as part of the profit of a business owner or self-employed individual. If a wealthy taxpayer can delay on spending his money until his retirement, taxation on the extra income can be avoided.
Another way of sheltering income is by maximizing the use of small business healthcare and employee benefits plans. When a business sets up health saving accounts, health reimbursement arrangements, and Section 125 plans, the expenses that would have been higher than the deduction thresholds for the taxpayer can be paid through the business on a pretax basis.
One more legal trick for sheltering your income is to put your child on the payroll of a business. Doing this provides two main benefits. First of all, if your child is a minor FICA and federal unemployment taxes may not need to be paid. Another positive outcome of putting your child on the payroll is the child can contribute to an IRA out of his earned income. If you employ your spouse, it can bring similar results. FICA has an annual cap of the amount an individual must pay, and because of that one spouse can be compensated higher than the limit. This may mean that one spouse contributes less into the Social Security system, but at the same time, it gives the opportunities to the taxpayer to invest privately instead of giving it all to the Social Security hands.