Tax Planning
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 collect some percentage of your earnings or profits, The IRS allows for several ways to reduce how much money you have to pay. Tax planning is also essential for successful retirement planning. At Correct Capital, we work with Columbia, IL individuals, families, and businesses in the Columbia, IL area to find creative and time-tested ways to reduce their tax liability. Speak to Correct Capital's financial planners and fiduciary advisors today at 877-930-4015, reach out online, or read on to discover how prudent tax planning can keep more money in your account both now and in the future.
Tax Planning for Columbia, IL Individuals and Families
Diligent tax planning can help individuals and families increase their retirement savings and have extra money for the short-term. Ways to reduce your tax liability when tax planning in Columbia, IL include:
- Standard Deduction vs. Itemizing —
The standard deduction is specific dollar figure that ensures all tax payers have at least some income that won't be taxed. In 2022 and 2023, that flat-rate is:
2022
- $12,950 for single filers
- $25,900 for married, filing jointly
- $12,950 for married, filing separately
- $19,400 for head of household
2023
- $13,850 for single filers
- $27, 700 for married, filing jointly
- $13,850 for married, filing separately
- $20,800 for head of household
If your deductible income is more than the above, you can count up each deduction you're eligible for one by one. The drawback is that it will take longer to fill out your return, and you will have to document why you are eligible for the deduction when you send your returns.
- Review Your Retirement Accounts —
Roth IRAs and Traditional IRAs both offer tax benefits in different ways. Contributions to a traditional IRA can be deducted from your taxable income, and the money is not taxed until you withdraw it. Roth IRA contributions cannot be deducted from your taxable income, but you will not be taxed on the withdrawal, as long certain requirements are met. Your age, income, and other factors will determine which type of account is preferable in terms of tax planning. For instance, if you anticipate have more tax liability in the future, you can move savings from a traditional IRA to a Roth IRA to pay taxes on the conversation, while allowing the money to grow tax-free.
If you contribute to a 401(k) plan with your employer, you can choose to defer income from your paycheck and have it placed directly in your 401(k). You can place up to $20,500 to a 401(k) in 2022, or up to $27,000 if you're 50 or older. For 2023, you can deposit up to $22,500 with an extra $7,500.
If you're have freelance income, you can open up an individual retirement plan, such as a One-Participant 401(k) Plan, and you can deduct the savings you put there from your taxable income.
- Tax-Loss Harvesting —
If you sell stocks, bonds, or options at a loss, you can use that loss to reduce your taxable capital gains. Tax-loss harvesting 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 deduct those that are greater than 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 tuition to an undergraduate, graduate and professional degree courses for your or a child, as well as courses that improve your job skills for a Lifetime Learning Credit.
- If Married, Filing Jointly or Separately —
More than 9 out of 10 married couples file jointly. It helps couples qualify for a higher standard deduction, in addition to a variety of tax credits not available to single filers. However, if both spouses are higher-earning individuals, filing separately may reduce their combined tax liability. If one spouse has a lot of medical expenses, it may make sense to file separately to qualify for the 7.5% limit for unreimbursed medical expenses.
- Contribute to Charity —
You can deduct up to 60% of your adjusted gross income via charitable donations. Accepted organizations are:
- 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 donations are used for charity
- Cemetery organizations
- Any U.S. federal, state, local, or Native governments and subdivisions, under the condition that the funds are for public use
- In many cases, a Canadian, Mexican, or Israeli organization, under the condition that the organization meets the criteria for a charity under United States law
If you save money in a Donor-Advised Fund, you can contribute a large amount now for an immediate tax reduction, and recommend how the funds are distributed over the years that follow.
If you are over 70½, you can make what's called a qualified charitable distribution by transferring a maximum of $100,000 a year from a traditional IRA directly to a non-profit organization tax-free. If you are 72 or older, that transfer counts as your required minimum distribution.
When you use a knowledgeable financial adviser for your tax planning in Columbia, IL|With the assistance of a financial adviser in Columbia, IL, they can help put more money in your pocket this year while also setting you up for a financially secure retirement.
Tax Planning for Columbia, IL Businesses
With prudent tax planning, business owners can keep as much of their profits as possible. Ways to owe less in taxes 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 individually.
- Review Your Employees' Employer-Sponsored Retirement Plans —
Offering retirement plans not only attracts and retains talent, but it also allows you to deduct contributions. The "SECURE" Act of 2019 changed rules for creating and maintaining retirement plans for both small and large employers, so it's likely in your best interest to speak to a financial advisor in Columbia, IL about how they may apply to your business.
a good idea if you and your employees are both higher-earning. While an employer would need to significant amounts of money per year, the tax saving can be significant.
- Consider Other Benefits For Your Employees —
Merely offering more money can result in higher taxes for you. See if your employees would be willing to accept other benefits as part of their compensation, instead of just giving them a higher paycheck. Examples that could help reduce your tax liability are medical insurance, group life insurance, childcare assistance, transportation reimbursement, meals, more paid time off, or continuing education reimbursement.
You can also set up accountable plans to reimburse employees for certain expenses like travel, meals, or entertainment without counting the reimbursement as income.
- Put Your Family to Work —
Your kids can work for you tax-free on income up to $12,000, and you can help them start saving for retirement through an account such as 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 deduct the transportation costs. There are two different ways of deducting those expenses:
- Use the standard mileage rate to deduct 58.5 cents per mile (for January to June in 2022) or 62.5 cents per mile (for the last six months of 2022); or
- Document your actual expenses, like maintenance, registration fees, and gas, and figure out if your deduction would be more than the standard mileage rate
- Consider Carryover Deductions —
If you're not able to make certain deductions this year, you may be able to carry them over into subsequent years. These can include 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 a knowledgeable Columbia, IL tax planner is that they will work with you and the person who prepares your taxes to identify if there are ways to strengthen your long-term financial success.
Other services we offer in Columbia, IL include:
- Succession Planning
- Fiduciary Financial Advisor
- Company 401(k) Plans
- ESOP Advisor
- Self-Employed Retirement Plans
Tax Planning in Columbia, IL | Correct Capital Wealth Management
At Correct Capital, our Columbia, IL financial advisors know strong financial health is key to your overall success. 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, you need 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 services in Columbia, IL, call Correct Capital today at 877-930-4015 or contact us online.
