Tax Planning
Tax Planning in Baltimore, MD. Tax liability refers to the amount you owe in taxes to local, state, and federal authorities. While Uncle Sam will always get some portion of your earnings or profits, there are perfectly legal ways to reduce your tax liability. Tax planning is also a key factor in successful retirement planning. At Correct Capital, although we do not provide tax advice, we work alongside local Baltimore, MD individuals, families, and businesses to find inventive and reliable ways to decrease their tax obligations. For instance, we might advise an individual to maximize deductible contributions to their retirement plan, which can help lessen tax costs. Reach out to Correct Capital's tax planners and fiduciary advisors today at 877-930-4015, connect with us online, or keep reading to learn how proactive tax planning can benefit you.
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Tax Planning for Baltimore, MD Individuals and Families
Proactive tax planning can help individuals and families build their retirement savings and provide them with more money for both now and years to come. Consider these elements when tax planning in Baltimore, MD:
- Standard Deduction vs. Itemizing —
The standard deduction is a preset amount that you can deduct from your taxable income without additional documentation. In 2024, the standard deductions are:
- $14,600 for single filers
- $29,200 for married, filing jointly
- $14,660 for married, filing separately
- $21,900 for head of household
When your deductible income is more than the standard deduction, itemizing each eligible deduction may be advantageous. However, itemizing requires more time and documentation to verify each deduction. A financial planner in Baltimore, MD can help determine whether taking the standard deduction or itemizing is more suitable.
- Review Your Retirement Accounts —
Roth IRAs and Traditional IRAs both provide tax advantages, though in different ways. Contributions to a traditional IRA may be fully or partially deductible, and taxes are only applied upon withdrawal. Unlike traditional IRAs, Roth IRA contributions are non-deductible, but your funds grow without future taxes. The best option depends on your individual financial picture and tax outlook. If you expect future tax rates to increase, a Roth conversion, or moving funds from a traditional IRA to a Roth IRA, might be wise to lock in tax-free growth while paying taxes upfront.
If you have a 401(k) plan with your employer, it's possible to defer part of your salary directly into your 401(k) account. In 2024, the maximum contribution limit for a 401(k) is $23,000, with an additional $7,500 allowed if you’re 50 or older.
If you're self-employed or have freelance income, you may also establish a retirement plan that suits your situation. Options include a Simplified Employee Pension (SEP) IRA or a One-Participant 401(k) Plan, which allow you to deduct your contributions.
- Tax-Loss Harvesting —
If you sell securities at a loss, you can offset the amount of capital gains tax owed on profits from other securities. This strategy is commonly used with short-term capital gains, as these are usually taxed more heavily than long-term gains. You can deduct up to $3,000 in capital losses each year, with any remaining losses rolled over into future tax years.
- Consider Paying Next Year's Bills Now —
If you have unreimbursed medical expenses, you may be able to deduct amounts exceeding 7.5% of your adjusted gross income. You can also make early payments for property taxes (if your local rules allow it), a child’s tuition, or professional courses, potentially benefiting from the Lifetime Learning Credit.
- If Married, Filing Jointly or Separately —
Approximately 95% of married couples choose to file jointly, which is the only way to qualify for certain tax credits and deductions. For high-income spouses, filing separately may reduce their tax bracket, depending on income differences. If one spouse incurs significant medical expenses, it might be advantageous to file separately to meet the 7.5% threshold for medical deductions.
- Make Charitable Donations —
By donating to qualifying organizations, you may deduct up to 60% of your adjusted gross income. Per IRS Publication 526, eligible organizations may include the following:
- Non-profits that are religious, scientific, educational, or focused on preventing cruelty to animals or children
- Veterans' organizations
- A domestic fraternal organization that operates under a "lodge system" as long as the funds are directed toward charity
- Cemetery companies or organizations
- Any U.S. federal, state, local, or Native governments and subdivisions, as long as funds are for public use
- In some cases, Canadian, Mexican, or Israeli organizations if they qualify as U.S.-equivalent charities
*According to IRS Publication 526 (2023), Charitable Contributions
By opening a Donor-Advised Fund, you can make a large contribution now for an immediate tax deduction and recommend how the funds are allocated in the future.
Once you reach age 70½, you’re eligible to make a qualified charitable distribution by transferring up to $105,000 annually from your IRA directly to a charity without tax consequences. If you are 73 or older, that donation also counts toward your required minimum distribution, which may reduce both your future required distributions and tax burden.
When you choose an experienced financial adviser for tax planning in Baltimore, MD, you’re able to reduce current tax liability while planning for taxes well into retirement. At Correct Capital, we aim to put more money in your pocket now while preparing you for a secure financial future.
Common Tax Planning Mistakes for Baltimore, MD Individuals and Families
Good tax planning plays an essential role in ensuring your family’s financial well-being. However, mistakes in tax planning can lead to paying more in taxes than necessary or missing out on potential savings. Here are a few frequent tax planning mistakes and ways Correct Capital can assist in preventing them:
- Not Maximizing Retirement Contributions —
When you don’t contribute the maximum allowable to tax-advantaged retirement accounts like Traditional IRAs, Roth IRAs, or 401(k)s, you may miss out on valuable tax deductions and long-term growth.
How Correct Capital Helps: We evaluate your financial situation to ensure you’re contributing as much as feasible, which can reduce taxable income while building a strong retirement foundation.
- Overlooking Available Tax Credits and Deductions —
Many people miss out on important tax credits and deductions, such as the Earned Income Tax Credit, Child Tax Credit, or deductions for education and medical expenses.
How Correct Capital Helps: Our advisors may review your tax return to see if you’ve claimed all available credits and deductions, aiming to maximize your refund (if eligible) or minimize any amount owed.
- Poor Record-Keeping —
A lack of organized financial records may result in missed deductions and complications at tax filing time, and without the right documents, you may have trouble supporting claims if audited.
How Correct Capital Helps: We work with you to create efficient record-keeping practices and gather needed documentation, so all records are accessible when tax season arrives or if an audit occurs.
- Ignoring Tax-Efficient Investment Strategies —
Overlooking the tax impact of investment decisions can diminish your returns. This may include neglecting asset location strategies or failing to harvest tax losses.
How Correct Capital Helps: We offer guidance on tax-efficient investing, helping you select suitable investment vehicles and strategies to reduce taxes on dividends, interest, and capital gains.
- Failing to Plan for Life Changes —
Major life events like marriage, divorce, having a child, or buying a home can have a substantial impact on your tax situation. Ignoring these life events may cause surprise tax liabilities.
How Correct Capital Helps: We collaborate with you to update your tax planning strategies in response to life changes, ensuring you benefit from new deductions or credits and stay compliant with tax regulations.
- Underestimating Estimated Tax Payments —
For income not subject to withholding—like freelance or investment earnings—you may be required to make estimated tax payments. Neglecting estimated tax payments may result in penalties.
How Correct Capital Helps: Our team assists in creating a cash reserve plan to ensure you meet estimated tax obligations, reducing the risk of penalties.
- Not Utilizing Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) —
HSAs and FSAs provide tax advantages for covering medical costs, but many eligible individuals miss out by not contributing.
How Correct Capital Helps: Our advisors explain the advantages of HSAs and FSAs and determine if they’re right for you, helping you set aside pre-tax funds for medical costs to reduce taxes.
- Overlooking Education Savings Plans —
By not using options like 529 plans, you could miss out on tax benefits that aid in saving for a child’s education.
How Correct Capital Helps: We guide you in setting up education savings accounts that provide tax-deferred growth and may offer state tax deductions.
- Not Reviewing Withholding Allowances —
Having too much or too little tax withheld from your paycheck can lead to either a large refund or an unexpected tax bill.
How Correct Capital Helps: We assist in adjusting your W-4 form to ensure correct withholding, helping improve cash flow and avoid surprises when filing taxes.
- Missing Opportunities for Charitable Contributions —
If you don’t track or plan your charitable contributions, you could lose valuable deduction opportunities.
How Correct Capital Helps: Our advisors help you strategize charitable contributions to maximize deductions, including guidance on Qualified Charitable Distributions if eligible.
Tax Planning for Baltimore, MD Business Owners
Business owners in Baltimore, MD can utilize tax planning strategies to maximize retained earnings in their business. Here are some factors to consider for tax planning in your Baltimore, MD business:
- Review the Structure of Your Business —
The structure of your business impacts tax planning and should be carefully considered. Whether you choose an LLC, sole proprietorship, partnership, or S or C corporation, your tax obligations for both the business and yourself will be impacted.
- Review the Retirement Plans You Offer Employees —
Offering retirement benefits like 401(k)s, 403(b)s, or other defined contribution plans can lower your tax burden. The "SECURE" Act of 2019 changed retirement plan rules for both small and large employers, so it’s wise to consult a financial advisor in Baltimore, MD about how these changes impact tax planning.
For high-income business owners with well-paid employees, consider a Cash Balance Pension Plan. While this may involve substantial contributions, the tax savings can be considerable.
- Have Your Family Work For The Business —
Hiring family members can bring tax benefits. Children can work for you tax-free up to $14,600, and they can start saving in a ROTH IRA. If your spouse works in the business, you may also double your retirement contributions.
- Use a Company Vehicle —
Based on your Baltimore, MD business type, you and your employees may qualify to use a company vehicle with deductible transportation costs. This deduction can be made in two ways:
- Deduct 67 cents per mile using the standard mileage rate, which applies to gas and electric vehicles alike; or
- Keep a record of actual expenses, including maintenance, registration, and gas, to see if this results in a larger deduction than the standard mileage rate.
- Consider Fringe Benefits For Your Employees —
Raising employee salaries may lead to increased employment tax costs. Explore the possibility of offering fringe benefits instead of wage raises. Some options that may help lower your tax costs include health insurance, group life insurance, childcare assistance, travel reimbursements, meal programs, paid family leave, and education reimbursements.
Accountable plans allow for reimbursing employees for specific expenses, like travel, meals, or entertainment, without these amounts counting as income.
- Look into Carryover Deductions —
If certain deductions can’t be claimed this year, it may be possible to carry them forward into a future tax year. Examples of carryover deductions include home office expenses, net operating losses, business credits, and capital losses.
Business tax laws change frequently. Partnering with a professional tax planner in Baltimore, MD means they work with you and your tax expert to identify strategies for enhancing long-term financial outcomes.
Common Tax Planning Mistakes for Baltimore, MD Businesses
Efficient tax planning can help businesses reduce tax burdens and boost profitability. Unfortunately, common tax mistakes can cause businesses to pay more, miss deductions, and risk penalties. Listed below are typical tax planning mistakes businesses make and how Correct Capital assists in avoiding them.
- Not Paying Estimated Quarterly Taxes —
Businesses may overlook or underpay quarterly estimated taxes, which can lead to penalties and interest from the IRS. This is especially common among small businesses, freelancers, or companies with variable income.
How Correct Capital Helps: We help businesses accurately calculate and schedule estimated tax payments, ensuring compliance with IRS deadlines and preventing unnecessary penalties.
- Neglecting Retirement Plan Contributions for Owners and Employees —
Many businesses don’t fully utilize retirement plan contributions as a way to lower taxable income. 401(k)s, SEP IRAs, and Solo 401(k)s offer significant tax advantages for business owners and employees.
How Correct Capital Helps: Our team helps set up and optimize retirement plans that lower taxes and serve as a tool for recruiting and retaining employees.
- Not Planning for Profitability and Cash Flow —
Some businesses only focus on minimizing their current tax bill, neglecting long-term growth and profitability. This approach can prevent businesses from taking advantage of strategic investment or growth opportunities.
How Correct Capital Helps: Our team provides tax planning that goes beyond short-term cuts, supporting businesses in planning for growth, reinvesting, and handling cash flow efficiently.
- Neglecting Exit and Estate Planning —
A succession plan addressing the financial aspects of selling a business is often overlooked by owners. Often focused on day-to-day business, owners can overlook how to handle proceeds from a sale to minimize taxes. Without proper estate planning, owners might not fully address their loved ones’ and beneficiaries’ financial security.
How Correct Capital Helps: We assist business owners with exit planning, guiding them in making informed decisions on how to allocate sale proceeds. Our approach involves identifying the purpose of the funds and applying estate planning strategies, which consider beneficiaries and minimize taxes.
Tax Planning in Baltimore, MD | Correct Capital Wealth Management
Our Baltimore, MD financial advisors and tax planners at Correct Capital know that your financial security—whether for family or business—is crucial now and in the long term. For this reason, we follow the fiduciary standard and our I.O.U. promise, meaning that every recommendation we provide is independent, objective, and unbiased. With tax laws constantly evolving, it’s essential to have a strong team in place, including your Baltimore, MD financial advisor, tax professional, and attorney. For assistance with tax planning, retirement planning, or other financial needs in Baltimore, MD, reach out to Correct Capital at 877-930-4015 or contact us online.
