Tax PlanningReduce Your Tax Liability With Correct Capital's Financial Advisors in Edwardsville, IL
Tax Planning in Edwardsville, IL. Tax liability refers to how much taxes you pay each year to local, state, and federal governments. Even though taxes may be one of the two certainties in life, The IRS allows for several ways to reduce your tax liability. Tax planning is also essential for successful retirement planning. At Correct Capital, we partner with Edwardsville, IL individuals, families, and businesses in the Edwardsville, IL area to find creative and time-tested ways to reduce their tax burden. Call Correct Capital's tax planners and fiduciary advisors today at 877-930-4015, reach out through our website, or read the article below to learn how prudent tax planning can keep more money in your account both now and down the road.
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Tax Planning for Edwardsville, IL Individuals and Families
Prudent tax planning is essential for individuals and families who want to increase their retirement savings and have extra money for the short-term. Some things to consider when tax planning in Edwardsville, IL include:
- Standard Deduction vs. Itemizing —
The standard deduction is flat figure that ensures all tax payers have at least some income that is not taxable. 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 more income that shouldn't be taxed than the above, you can itemize your return. The drawback is that filing will be more complicated, and you have to prove each deduction.
- Evaluate Your Retirement Accounts —
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. Money put into a Roth IRA are not deductible, but you will not be taxed on the withdrawal, as long certain requirements are met. Your age, income, and other factors will determine whether a Traditional or Roth IRA is preferable in terms of tax planning. For example, if you expect your taxes to go up in the future, you can transfer money from a traditional IRA to a Roth IRA to pay taxes on the conversation, while allowing the money to grow tax-free.
If you have a 401(k) plan with your employer, you can choose to have earnings deposited into your 401(k) account instead of it going to your paycheck. You can place up to $20,500 to a 401(k) in 2022, plus an extra $6,500 if you're at least 50 years old. For 2023, you can contribute as much as $22,500 or $30,000.
If you're self-employed, you can open up an individual retirement plan, like a One-Participant 401(k) Plan, and you can deduct your contributions there.
- Tax-Loss Harvesting —
If you sell stocks, bonds, or options at a loss, you can offset the amount of capital gains tax you would have to pay if other securities sold at a profit. Tax-loss harvesting is utilized more with short-term capital gains, as the tax rate is typically higher than long-term. The maximum deductible amount is $3,000 per year, but you may be able to deduct higher losses in future years.
- Consider Paying Next Year's Bills Now —
If you have medical expenses your insurance didn't cover, you can deduct those that exceed 7.5% of your adjusted gross income. Paying property taxes early can also lead to deductions, and you can pay for a child's tuition or for career-boosting classes for you early for a Lifetime Learning Credit.
- If Married, Filing Jointly or Separately —
More than 9 out of 10 married couples choose to file joint tax returns. It's the only way to qualify for certain tax credits and reductions. However, if both spouses have a high income, they may be in a lower tax bracket if they file separately. If one spouse has a lot of medical expenses, it may make sense to file separately to qualify for the 7.5% limit for medical deductions.
- Contribute to Charity —
You can deduct up to 60% of your adjusted gross income via charitable donations. Qualifying 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 money are used for charity
- Cemetery companies
- Any government entities, as long as the funds are meant to benefit the public
- Often, a Canadian, Mexican, or Israeli organization, as long as 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 at least 70½ years old, 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 without having to pay taxes on it. If you are 72 or older, that transfer qualifies as your required minimum distribution.
When you consult with an experienced financial adviser for your tax planning in Edwardsville, IL|With the help a financial adviser in Edwardsville, IL, they can help put more money in your pocket this year while also setting you up for a financially secure future.
Tax Planning for Edwardsville, IL Business Owners
With diligent tax planning, business owners can keep as much of their profits as possible. Ways to owe less in taxes when tax planning for your Edwardsville, IL business include:
- Review 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.
- Assess 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 offers new benefits for employers who offer certain retirement plans, so it's recommended to meet with a financial advisor in Edwardsville, IL about how those changes affect your tax planning.
A Cash Balance Pension Plan may be ideal for higher-earning business owners and employees. While a business owner must contribute several hundred thousand dollars annually, the tax saving can be significant.
- Consider Fringe Benefits For Your Employees —
Increasing your employees' wages can lead to higher employment tax costs. Talk to your employees about whether or not they would be open to other benefits rather than just rewarding them with more money. Examples that could help reduce your tax liability are medical insurance, group life insurance, help with childcare costs, transportation reimbursement, meals, family or medical leave, or continuing education reimbursement.
You can also use accountable plans to pay employees back 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 kick-start their retirement savings through an account such as a ROTH IRA. If both you and your spouse work for the business, you can double your retirement plan contributions.
- Buy a Company Vehicle —
Depending on the specifics of your business, you and your employees may be able to use a company vehicle and deduct the transportation costs. 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 the last six months of 2022); or
- Keep a record of your actual expenses, like maintenance, registration fees, and gas, and calculate whether those allow you to deduct more than the standard mileage rate would have
- Consider Carryover Deductions —
If you're not able to make certain deductions this year, you may be able to carry them over into another year. These can include a home office deduction, net operating losses, business credits, and capital losses.
Tax laws for businesses are always in flux. A key advantage of working with an experienced Edwardsville, IL tax planner is that they will work with you and your tax professional to discover if there are ways to improve your personal and business financial success.
Other services we offer in Edwardsville, IL include:
- Succession Planning
- Fiduciary Financial Advisor
- Company 401(k) Plans
- ESOP Advisor
- Self-Employed Retirement Plans
Tax Planning in Edwardsville, IL | Correct Capital Wealth Management
At Correct Capital, our Edwardsville, IL financial advisors 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 do what's best for you and only you. With tax law always changing, it's important to put a team around you that will help, like your Edwardsville, IL financial advisor, tax professional, and attorney. For help with tax planning, asset management, or any other financial services in Edwardsville, IL, call Correct Capital today at 877-930-4015 or contact us online.