Tax Planning
Tax Planning in Edwardsville, IL. Tax liability is how much you owe in taxes to local, state, and federal entities. While taxes may be one of the two certainties in life, The IRS allows for several ways to reduce how much money you have to pay. Tax planning is also essential to planning the golden years of your dreams. At Correct Capital, we work with Edwardsville, IL individuals, families, and businesses in the Edwardsville, IL area to find creative and proven ways to reduce how much they owe. Call Correct Capital's financial planners and fiduciary advisors today at 877-930-4015, contact us online, or read on to discover how prudent tax planning can benefit you.
Tax Planning for Edwardsville, IL Individuals and Families
Diligent tax planning can help individuals and families increase their retirement savings and have extra money for the short-term. Some things to consider when tax planning in Edwardsville, IL are:
- Standard Deduction vs. Itemizing —
The standard deduction is a no-questions-asked amount that reduces the amount of income you are taxed on. In 2022 and 2023, the standard deductions are:
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 count up each deduction you're eligible for one by one. The disadvantage 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.
- Evaluate Your Retirement Accounts —
Roth IRAs and Traditional IRAs differ in how your savings are taxed. Money you put into a traditional IRA can be deducted from your taxable income, and the money is not taxed until you withdraw it. Money put into a Roth IRA cannot be deducted from your taxable income, but the money grows tax free. Your unique situation will determine which type of account is preferable for your tax planning. For instance, if you expect your taxes to go up in the future, you can transfer funds from a traditional IRA to a Roth IRA to pay taxes on the conversation, and enjoy tax-free withdrawals when you need the money in retirement.
If you contribute to a 401(k) plan with your employer, you can choose to have money deposited into your 401(k) account instead of it going to your paycheck. You can contribute up to $20,500 to a 401(k) in 2022, plus an extra $6,500 if you're 50 or older. For 2023, you can deposit as much as $22,500 or $30,000.
If you're self-employed, there are also retirement plans available, like a One-Participant 401(k) Plan, and you can deduct the funds 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. This strategy is utilized more with short-term capital gains, as the tax rate is usually 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 are greater than 7.5% of your adjusted gross income. Paying property taxes early can also lead to deductions, and you can 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's the only way to get certain tax credits and reductions. However, if both spouses have substantial earnings, filing separately may reduce their combined tax liability. If one spouse received considerable medical care in a given year, it may be preferable to file separately to qualify for the 7.5% threshold for medical deductions.
- Make Charitable Donations —
You can deduct up to 60% of your adjusted gross income when donating to certain organizations. Qualifying organizations are:
- Non-profit organizations that are religious, scientific, educational, or for the prevention of cruelty to animals and children
- Veterans' organizations
- A domestic fraternal organization operating under the "lodge system," under the condition that the money are used for charity
- Cemetery companies
- Any government entities, 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 have been organized 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 down the road.
If you are at least 70½ years of age, you can make what's referred to as a qualified charitable distribution by transferring up to $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 counts as your required minimum distribution.
When you consult with an experienced financial planner 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 now while also setting you up for a financially secure retirement.
Tax Planning for Edwardsville, IL Businesses
With prudent tax planning, business owners can keep as much of their profits as possible. Some things to consider when tax planning for your Edwardsville, IL business include:
- Assess the Structure of Your Business —
A lot goes into the structure of a business, and tax planning should be considered. Structuring your business as an LLC, sole proprietorship, partnership, or S or C corporation will affect how much you pay in taxes both as a business and individually.
- Evaluate the Retirement Plans You Offer Employees —
Offering your employees retirement plans, such as 401(k)s, 403(b)s, and other defined contribution plans is a great way to reduce your tax liability. 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 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 each year, the tax saving can be significant.
- Consider Other Benefits For Your Employees —
Only offering more money can lead to higher employment tax costs. See if your employees would be open to other benefits as part of their compensation, instead of just giving them a raise. Examples that could help reduce your tax liability are medical insurance, group life insurance, childcare assistance, transportation reimbursement, meals, family or medical leave, or paying for courses that help in their career.
You can also set up 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 —
Children can work for you tax-free on income up to $12,000, 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 if 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. There are two different means 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 July to December in 2022); or
- Keep a record of your actual expenses, like maintenance, registration fees, and gas, and figure out whether those allow you to deduct more than the standard mileage rate would have
- Consider Carryover Deductions —
You're allowed to carryover some deductions into another year. These can include a home office deduction, net operating losses, business credits, and capital losses.
Tax laws for businesses are always changing. A key advantage of consulting with an experienced Edwardsville, IL tax planner is that they will work with you and your tax professional to determine if there are ways to strengthen 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
- 401(k) For Small Business
- Small Business Retirement Plans
- Social Security Consultants Near Me
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's why we give our I.O.U. promise; you will only hear recommendations that are independent, objective, and unbiased. With tax law always changing, you need 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.
