Reduce Your Tax Liability With Correct Capital's Financial Advisors in Columbia, IL
Tax Planning in Columbia, IL. Tax liability is how much taxes you will need to pay to local, state, and federal entities. Even though Uncle Sam will always get some percentage of your earnings or profits, The IRS allows for several ways you can reduce how much you owe. Tax planning is also key to planning the retirement of your dreams. At Correct Capital, we partner with Columbia, IL individuals, families, and businesses in the Columbia, IL area to find creative and proven ways to reduce their tax burden. Speak to Correct Capital's tax planners and fiduciary advisors today at 314-930-401(k), reach out through our website, or read on to discover how prudent tax planning can benefit you.
Tax Planning for Columbia, IL Individuals and Families
Prudent tax planning is essential for individuals and families who want to put more in their retirement accounts and have extra money for the short-term. Ways to reduce how much you owe when tax planning in Columbia, IL are:
- Standard Deduction vs. Itemizing —
The standard deduction is flat amount that reduces the amount of income you are taxed on. In 2022 and 2023, that flat-rate is:
- $12,950 for single filers
- $25,900 for married, filing jointly
- $12,950 for married, filing separately
- $19,400 for head of household
- $13,850 for single filers
- $27, 700 for married, filing jointly
- $13,850 for married, filing separately
- $20,800 for head of household
If more income that shouldn't be taxed than the above, you can itemize your return. The downside is that it will take longer to complete your return, and you have to prove each deduction.
- Evaluate How You Are Saving For Retirement —
Roth IRAs and Traditional IRAs both offer tax benefits in different ways. Savings you put into a traditional IRA may be fully or partially deductible, and the money is not taxed until you withdraw it. Savings put into a Roth IRA cannot be deducted from your taxable income, but the money grows tax free. Your unique situation will determine whether a Traditional or Roth IRA is preferable in terms of tax planning. For instance, if you anticipate being in a higher tax bracket down the road, you can transfer savings from a traditional IRA to a Roth IRA to pay taxes on the transfer, and enjoy tax-free withdrawals when you need the money in retirement.
If you contribute to a 401(k) plan through your job, you can choose to defer income from your paycheck and have it placed directly in your 401(k). You can contribute up to $20,500 to a 401(k) in 2022, or up to $27,000 if you're at least 50 years old. For 2023, you can contribute up to $22,500 with an extra $7,500.
If you're self-employed, there are also retirement plans available, such as a One-Participant 401(k) Plan, and you can deduct your contributions there.
- Tax-Loss Harvesting —
If you lose money on the sale of any stocks, bonds, or options, you can use that loss to reduce your taxable capital gains. This strategy is more common with short-term capital gains, as the tax rate is typically higher than long-term. You can deduct up to $3,000 in capital gains losses per year, but additional losses can be carried over into future years.
- Consider Paying Next Year's Bills Now —
If you have unreimbursed medical expenses, you can write off those that exceed 7.5% of your adjusted gross income. You can also make deductions this year for property taxes if you pay early (and if your municipality allows it), pay for a kid's tuition or for career-boosting classes for you early in order to qualify for a Lifetime Learning Credit.
- If Married, Filing Jointly or Separately —
The IRS says that roughly 95% of married couples choose to file joint tax returns. It helps couples qualify for a higher standard deduction, as well as a variety of tax credits not available to single filers. But, if both spouses earn considerable incomes, they may be in a lower tax bracket if they file separately. If one spouse received substantial medical care in a given year, it may be preferable to file separately to qualify for the 7.5% threshold for medical deductions.
- Contribute to Charity —
You can deduct up to 60% of your adjusted gross income when donating to certain organizations. Accepted charities include:
- Non-profit organizations that are religious, scientific, educational, or dedicated to the prevention of cruelty to animals and children
- Veterans' organizations
- A domestic fraternal organization operating under the "lodge system," as long as the funds are used for charity
- Cemetery organizations
- Any U.S. federal, state, local, or Native governments and subdivisions, as long as the donations are meant to benefit the public
- Often, a Canadian, Mexican, or Israeli organization, under the condition that the organization would qualify as a charity under U.S. law
If you start a Donor-Advised Fund, you can deduct a bulk amount now, while still being able to wait to decide how the funds will get distributed in the future.
If you are over 70½, you can make what's referred to as a qualified charitable distribution by transferring a maximum of $100,000 a year from a traditional IRA directly to a non-profit organization without having to pay taxes on it. If you are 72 or older, that transfer qualifies as your required minimum distribution.
When you use a knowledgeable financial adviser for your tax planning in Columbia, IL|With the help a financial planner in Columbia, IL, you can not only pay less in taxes this year, but plan out your taxes into retirement.
Tax Planning for Columbia, IL Businesses
Business owners can use effective tax planning to keep more money in their business. Some things to consider when tax planning for your Columbia, IL business include:
- Evaluate the Structure of Your Business —
There are many things to consider when deciding how to structure or restructure your business. Structuring your business as an LLC, sole proprietorship, partnership, or S or C corporation will have consequences for how much you pay in taxes both as a business and personally.
- Assess the Retirement Plans You Offer Employees —
There are many benefits to offering employees a retirement plan, and reducing your tax liability is chief among them. The "SECURE" Act of 2019 changed rules for creating and maintaining retirement plans for both small and large employers, so it's recommended to meet with a financial advisor in Columbia, IL about how they may apply to your business.
For higher-earning business owners with higher-earning employees, consider a Cash Balance Pension Plan. While you would have to considerable sums of money each year, the tax benefits are high.
- Consider Other Benefits For Your Employees —
Increasing your employees' wages can result in higher taxes for you. Talk to your employees about whether or not they would be willing to accept fringe benefits as part of their compensation, instead of just rewarding them with a raise. Examples that could help reduce your tax liability are medical insurance, group life insurance, help with childcare expenses, transportation reimbursement, meals, family or medical leave, or continuing education reimbursement.
You can also use accountable plans to reimburse employees for certain expenses like travel, meals, or entertainment without counting the reimbursement as income.
- Have Your Family Work For The Business —
If you hire your children, they do not have to pay taxes on their first $12,000 in income, and you can help them begin to save in a vehicle like a ROTH IRA. You can double how much you're allowed to put into retirement plans by having your spouse work for the business.
- Buy a Company Vehicle —
If you and your employees need to drive as part of the normal course of your business, you can subtract transportation expenses from your taxable profits. You can make the deduction in two ways:
- Use the standard mileage rate to deduct 58.5 cents per mile (for the first 6 months of 2022) or 62.5 cents per mile (for July to December in 2022); or
- Document your actual expenses, like maintenance, registration fees, and gas, and determine whether those allow you to deduct more than the standard mileage rate would have
- Look into Carryover Deductions —
If you're not able to make certain deductions this year, you may be able to carry them over into another year. Common carryover deductions are a home office deduction, net operating losses, business credits, and capital losses.
US lawmakers are always making new tax laws for businesses, or adjusting old ones. One advantage of working with an experienced Columbia, IL tax planner is that they will work with you and your tax professional to discover if there are ways to strengthen your personal and business financial success.
Other services we offer in Columbia, IL include:
- Fiduciary Financial Advisor
- Company 401(k) Plans
- ESOP Advisor
- Self-Employed Retirement Plans
- 401(k) For Small Business
- Small Business Retirement Plans
- Social Security Consultants Near Me
- Retirement Calculator
- Retirement Planning
Tax Planning in Columbia, IL | Correct Capital Wealth Management
At Correct Capital, our Columbia, IL tax planners know how important the financial health of your family or business is, both now and in the future. That is why we hold ourselves to the fiduciary standard: we are legally and ethically bound to act in your best interest. With tax law always changing, it's important to put a team around you that will help, like your Columbia, IL financial advisor, tax preparer, and attorney. For help with tax planning, asset management, or any other financial needs in Columbia, IL, call Correct Capital today at 314-930-401(k) or contact us online.