Tax Planning
Tax Planning in Durham, NC. 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 vital to successful retirement planning. At Correct Capital, although we do not provide tax advice, we collaborate with local Durham, NC residents, families, and business owners to explore effective and tried-and-true ways to decrease their tax obligations. One approach we may recommend is maximizing deductible employee or employer retirement contributions to reduce tax expenses. Reach out to Correct Capital's tax planners and fiduciary advisors today at 877-930-4015, contact us online, or read on to see how effective tax planning can make a difference.
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Tax Planning for Durham, NC Individuals and Families
Effective tax strategies can help individuals and families build their retirement savings and give them more money for both today and in the near future. Here are some key points when tax planning in Durham, NC:
- 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
If your deductible expenses are higher than these thresholds, itemizing—adding each eligible deduction individually—may be beneficial. However, itemizing requires more time and documentation to verify each deduction. A financial planner in Durham, NC can help determine whether claiming the standard or itemized deduction is more suitable.
- Review Your Retirement Accounts —
Roth IRAs and Traditional IRAs both offer tax benefits, but in distinct ways. With a traditional IRA, your contributions may be deductible, and you defer taxes until you take distributions. On the other hand, Roth IRAs do not offer a deduction for contributions, yet allow your money to grow tax-free. Which account benefits you most will depend on your specific tax planning needs. One potential strategy is a Roth conversion, which moves funds from a traditional to a Roth IRA, letting you pay taxes now and enjoy tax-free growth later.
If you have a 401(k) plan with your employer, you can defer income from your paycheck directly to your 401(k). The 401(k) contribution limit for 2024 is $23,000, along with an additional $7,500 for individuals 50 or older.
Freelancers or self-employed individuals can open up personal retirement plans tailored to their needs. 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 —
Around 95% of married couples file taxes jointly, a method that enables eligibility for specific tax credits and reductions. In cases where one spouse earns more, filing separately could result in a lower tax bracket for the higher earner. Separate filing may also make sense if one partner has considerable medical costs, making it easier to meet the 7.5% medical deduction limit.
- Make Charitable Donations —
You can deduct up to 60% of your adjusted gross income by making donations to certain organizations. Under IRS guidelines, the following types of organizations may qualify:
- Non-profits that are religious, scientific, educational, or focused on preventing cruelty to animals or children
- Non-profits supporting veterans
- Fraternal organizations under a "lodge system" provided funds are used for charity
- Organizations managing cemeteries
- Federal, state, local, or Native government entities, provided funds are for public purposes
- Certain Canadian, Mexican, or Israeli organizations that would be considered charitable under U.S. law
*According to IRS Publication 526 (2023), Charitable Contributions
Opening a Donor-Advised Fund allows for an upfront tax deduction with the flexibility to recommend how funds are distributed over time.
If you are over 70½, you can make a qualified charitable distribution by transferring up to $105,000 per year from a traditional IRA directly to a charity, tax-free. At age 73 and over, this donation meets the requirements for your required minimum distribution and could lessen both future required distributions and your tax bill.
By working with an experienced financial adviser for tax planning in Durham, NC, you can reduce your tax liability this year and create a plan for managing taxes through 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 Durham, NC Individuals and Families
Effective tax planning is crucial for your family’s financial health. Yet, many people unintentionally make errors that could result in higher tax liabilities or missed savings opportunities. Here are a few frequent tax planning mistakes and ways Correct Capital can assist in preventing them:
- Not Maximizing Retirement Contributions —
By not maximizing contributions to retirement accounts like Traditional IRAs, Roth IRAs, or 401(k)s, you risk losing out on tax deductions and long-term growth opportunities.
How Correct Capital Helps: Our team assesses your finances to confirm you’re maximizing contributions, minimizing your tax burden while enhancing your retirement savings.
- Overlooking Available Tax Credits and Deductions —
Many miss out on significant credits and deductions, such as the Earned Income Tax Credit, Child Tax Credit, or deductions for healthcare and education 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: Our team helps you establish organized record-keeping systems and locate required documents, making sure everything is available for tax filing or in case of an audit.
- Ignoring Tax-Efficient Investment Strategies —
When investment decisions are made without considering tax consequences, returns may be reduced. This often happens when asset location strategies are ignored or tax losses are not harvested.
How Correct Capital Helps: Our team provides insight on tax-efficient investment choices, assisting you in minimizing taxes on dividends, interest, and capital gains through strategic asset selection.
- Failing to Plan for Life Changes —
Significant life changes, such as marriage, divorce, becoming a parent, or purchasing a home, can greatly affect your tax obligations. 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 —
If you earn income not subject to withholding, such as freelance or investment income, estimated tax payments may be necessary. Failure to do so can lead to penalties and interest.
How Correct Capital Helps: We work with you to build cash reserves to cover estimated tax payments, helping you avoid penalties and interest fees.
- Not Utilizing Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) —
HSAs and FSAs allow for tax-efficient healthcare spending, but they’re often underutilized by eligible individuals.
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 —
Ignoring options like 529 college savings plans can lead to missed tax benefits when saving for a child’s education.
How Correct Capital Helps: We help you open education savings accounts, allowing for tax-deferred growth and possible state tax benefits.
- Not Reviewing Withholding Allowances —
Withholding too much or too little tax from your paycheck often leads to surprises at tax time, like large refunds or owing taxes.
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 —
Not properly documenting charitable donations can lead to missed tax deductions.
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 Durham, NC Business Owners
Business owners in Durham, NC can use strategic tax planning to keep more revenue within their business. Consider these points when tax planning for your Durham, NC business:
- Review the Structure of Your Business —
Your business structure plays a significant role in tax planning and should be carefully evaluated. 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 —
Setting up retirement plans like 401(k)s, 403(b)s, and similar options can help reduce tax obligations. 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 Durham, NC about how these changes impact tax planning.
For business owners and employees with higher incomes, a Cash Balance Pension Plan can offer significant tax savings, even if it requires a sizable investment.
- Have Your Family Work For The Business —
Bringing family into the business offers tax perks, such as allowing children to work tax-free up to $14,600, and they can even start contributing to a ROTH IRA. Having your spouse on the payroll can let you double the amount you contribute to retirement.
- Use a Company Vehicle —
Depending on your business activities in Durham, NC, both you and your employees could use a company vehicle and deduct the associated costs. This deduction can be made in two ways:
- Take the standard mileage deduction of 67 cents per mile for gas and electric vehicles; or
- Maintain records of actual costs like maintenance, registration, and fuel to calculate whether this deduction is greater than the standard mileage rate.
- Consider Fringe Benefits For Your Employees —
Boosting employee wages often results in higher employment taxes. Consider whether employees would prefer fringe benefits instead of direct wage increases. Examples that could help reduce your tax liability include medical insurance, group life insurance, childcare support, transportation reimbursements, meal programs, family or medical leave, and reimbursement for continued education.
You can implement accountable plans to cover certain employee expenses, such as travel, meals, or entertainment, without reporting them 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. Potential carryover deductions are home office deductions, net operating losses, business credits, and capital losses.
Tax regulations for businesses are always in flux. Partnering with a professional tax planner in Durham, NC means they work with you and your tax expert to identify strategies for enhancing long-term financial outcomes.
Common Tax Planning Mistakes for Durham, NC Businesses
Effective tax planning allows businesses of all sizes to reduce tax liabilities and increase profitability. However, many businesses fall into common tax mistakes that may lead to higher taxes, missed deductions, or even penalties. Below are some of the most common tax planning errors businesses make and how Correct Capital can help you avoid 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 provide support in calculating and scheduling estimated taxes so you meet IRS requirements and avoid 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. Options such as 401(k)s, SEP IRAs, and Solo 401(k)s deliver notable tax benefits for both owners and staff.
How Correct Capital Helps: We work with businesses to set up and maximize retirement plans, which reduce taxes while also helping attract and retain talent.
- Not Planning for Profitability and Cash Flow —
Many companies prioritize short-term tax savings over long-term profitability and growth. Such a narrow focus may cause missed opportunities for reinvestment or tax-efficient growth.
How Correct Capital Helps: We deliver thorough tax planning to support future growth, optimize reinvestment, and ensure efficient cash flow management.
- Neglecting Exit and Estate Planning —
Many business owners don’t establish a succession plan to handle the financial details involved in selling their business. While they may focus heavily on operations, they might miss planning for how to manage and allocate the sale proceeds in a tax-efficient way. 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. We focus on defining the purpose of these funds and addressing them from an estate planning perspective, ensuring beneficiaries are considered and taxes are minimized through careful planning.
Tax Planning in Durham, NC | Correct Capital Wealth Management
At Correct Capital, our Durham, NC financial advisors and tax planners understand how essential the financial health of your family or business is, both now and in the future. That’s why we adhere to the fiduciary standard and our I.O.U. promise: all the advice we offer is independent, objective, and unbiased. Since tax laws are always changing, it’s vital to surround yourself with a solid team, such as your Durham, NC financial advisor, tax professional, and legal advisor. For support with tax planning, retirement planning, or any other financial concerns in Durham, NC, contact Correct Capital at 877-930-4015 or reach out online.
