Tax Planning
Tax Planning in Grand Rapids, MI. 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 a key factor in successful retirement planning. At Correct Capital, we don’t offer tax advice, but we collaborate with local Grand Rapids, MI people, families, and companies to discover creative and proven ways to decrease their tax obligations. We could suggest maximizing deductible retirement contributions, which could reduce tax costs. 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.
Tax Planning for Grand Rapids, MI Individuals and Families
Smart tax planning can help individuals and families grow their retirement savings and offer them more money for both the present and the future. Consider these elements when tax planning in Grand Rapids, MI:
- Standard Deduction vs. Itemizing —
The standard deduction is a automatic 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. The drawback is that itemizing can be time-consuming and requires proof of each deduction. A financial planner in Grand Rapids, MI can work with you to decide whether using the standard deduction or itemizing is more suitable.
- Review Your Retirement Accounts —
Roth IRAs and Traditional IRAs both offer tax benefits, but in distinct ways. Contributions to a traditional IRA may be fully or partially deductible, and taxes are only applied upon withdrawal. On the other hand, Roth IRAs do not offer a deduction for contributions, yet allow your money to grow tax-free. The best option depends on your individual financial picture and tax outlook. If you expect future tax rates to increase, a Roth conversion, or moving funds from a traditional IRA to a Roth IRA, might be wise to lock in tax-free growth while paying taxes upfront.
If you have a 401(k) plan with your employer, you can set aside income from your paycheck, placing it straight into your 401(k). The 401(k) contribution limit for 2024 is $23,000, along with an additional $7,500 for individuals 50 or older.
For self-employed individuals or those with freelance income, individual retirement plans are also available. 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 —
By selling securities at a loss, you can offset capital gains taxes owed on gains from other investments. This strategy is commonly used with short-term capital gains, as these are usually taxed more heavily than long-term gains. The IRS allows up to $3,000 in capital loss deductions annually, and any unused losses may be applied to future tax years.
- Consider Paying Next Year's Bills Now —
For unreimbursed medical expenses, you can deduct costs that surpass 7.5% of your adjusted gross income. Additionally, you might consider paying property taxes early (if allowed by your municipality), prepaying a child’s tuition, or covering your own career-enhancing classes for a Lifetime Learning Credit.
- If Married, Filing Jointly or Separately —
Approximately 95% of married couples choose to file jointly, which is the only way to qualify for certain tax credits and deductions. For high-income spouses, filing separately may reduce their tax bracket, depending on income differences. If one spouse incurs significant medical expenses, it might be advantageous to file separately to meet the 7.5% threshold for medical deductions.
- 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
- Organizations dedicated to veterans
- Fraternal organizations under a "lodge system" provided funds are used for charity
- Organizations managing cemeteries
- Government agencies at any level within the U.S. when funds are for public benefit
- In some cases, Canadian, Mexican, or Israeli organizations if they qualify as U.S.-equivalent charities
*According to IRS Publication 526 (2023), Charitable Contributions
By opening a Donor-Advised Fund, you can make a large contribution now for an immediate tax deduction and recommend how the funds are allocated in the future.
At age 70½ or older, you can make a qualified charitable distribution by transferring up to $105,000 each year tax-free from a traditional IRA directly to a charity. 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.
Using a skilled financial adviser for tax planning in Grand Rapids, MI not only helps lower your tax bill this year but also lays out a strategy for retirement taxes. At Correct Capital, our goal is to help you save now and position yourself for financial stability in the future.
Common Tax Planning Mistakes for Grand Rapids, MI Individuals and Families
Effective tax planning is crucial for your family’s financial health. Unfortunately, errors in tax planning often cause people to owe more or miss savings opportunities. Here are a few frequent tax planning mistakes and ways Correct Capital can assist in preventing them:
- Not Maximizing Retirement Contributions —
Failing to contribute the maximum allowable amounts to tax-advantaged retirement accounts, such as Traditional IRAs, Roth IRAs, or 401(k) plans, can lead to missed tax deductions and reduced growth potential over time.
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: We carefully examine your tax return to verify if you’ve taken advantage of all possible credits and deductions, helping to maximize refunds or reduce liabilities.
- Poor Record-Keeping —
Disorganized financial records can lead to missed deductions and complications when filing taxes. Without accurate documentation, you might struggle to substantiate 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 —
Neglecting tax-efficient investment strategies, such as asset location or tax-loss harvesting, can erode overall returns.
How Correct Capital Helps: We help you implement tax-efficient investment strategies, including selecting the best vehicles and methods to lower taxes on dividends, interest, and gains.
- Failing to Plan for Life Changes —
Life events, including marriage, divorce, welcoming a child, or buying a property, often alter your tax landscape considerably. Overlooking these changes could result in unforeseen tax bills.
How Correct Capital Helps: Our team works with you to adapt your tax planning to significant life events, so you maximize applicable credits and deductions and meet tax requirements.
- Underestimating Estimated Tax Payments —
Income that doesn’t undergo withholding, such as freelance or investment income, often requires estimated tax payments. Without making these payments, you could face fines and interest charges.
How Correct Capital Helps: Our team assists in creating a cash reserve plan to ensure you meet estimated tax obligations, reducing the risk of penalties.
- 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: We help you explore the advantages of HSAs and FSAs, advising on how pre-tax contributions for healthcare can lower your taxable income.
- 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 work with you to adjust your withholding allowances for improved cash flow and reduced surprises during tax season.
- Missing Opportunities for Charitable Contributions —
Failing to document or strategize charitable donations can mean lost 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 Grand Rapids, MI Business Owners
Business owners in Grand Rapids, MI can utilize tax planning strategies to maximize retained earnings in their business. Here are some factors to consider for tax planning in your Grand Rapids, MI business:
- Review the Structure of Your Business —
How your business is structured is key for tax planning and requires thoughtful consideration. 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 —
Offering retirement benefits like 401(k)s, 403(b)s, or other defined contribution plans can lower your tax burden. 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 Grand Rapids, MI about how these changes impact tax planning.
For high-income business owners with well-paid employees, consider a Cash Balance Pension Plan. While this may involve substantial contributions, the tax savings can be considerable.
- Have Your Family Work For The Business —
Employing family members can yield tax advantages. Children can earn up to $14,600 without paying taxes and could start saving in a ROTH IRA. Employing your spouse can allow for increased retirement contributions, potentially doubling your retirement savings.
- Use a Company Vehicle —
Depending on your business activities in Grand Rapids, MI, both you and your employees could use a company vehicle and deduct the associated costs. This deduction can be made in two ways:
- Deduct 67 cents per mile using the standard mileage rate, which applies to gas and electric vehicles alike; or
- Track your actual expenses, such as maintenance, registration fees, and fuel, to determine if this amount exceeds the standard mileage rate deduction.
- Consider Fringe Benefits For Your Employees —
Increasing wages for employees can drive up employment tax expenses. Consider whether employees would prefer fringe benefits instead of direct wage increases. Possible fringe benefits that may reduce tax liabilities are health insurance, group life insurance, childcare assistance, transport reimbursements, meals, family or medical leave, and continuing education reimbursement.
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 —
When some deductions are unavailable this year, they may be eligible for carryover into future years. Potential carryover deductions are home office deductions, net operating losses, business credits, and capital losses.
Business tax laws change frequently. Partnering with a professional tax planner in Grand Rapids, MI means they work with you and your tax expert to identify strategies for enhancing long-term financial outcomes.
Common Tax Planning Mistakes for Grand Rapids, MI Businesses
Efficient tax planning can help businesses reduce tax burdens and boost profitability. Yet, numerous businesses make frequent tax errors that result in increased tax bills, overlooked deductions, and potential penalties. Here’s a look at frequent tax pitfalls and how Correct Capital can help businesses steer clear of 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 issue frequently affects small businesses, freelancers, and companies with irregular income.
How Correct Capital Helps: Our team assists in calculating and timing estimated tax payments to keep businesses compliant with IRS rules and avoid penalties.
- Neglecting Retirement Plan Contributions for Owners and Employees —
Retirement plan contributions are often underused by businesses to reduce taxable income. Plans like 401(k)s, SEP IRAs, and Solo 401(k)s can provide substantial tax benefits for both owners and employees.
How Correct Capital Helps: Our team helps set up and optimize retirement plans that lower taxes and serve as a tool for recruiting and retaining employees.
- Not Planning for Profitability and Cash Flow —
Many companies prioritize short-term tax savings over long-term profitability and growth. This approach can prevent businesses from taking advantage of strategic investment or growth opportunities.
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. Often focused on day-to-day business, owners can overlook how to handle proceeds from a sale to minimize taxes. Without proper estate planning, owners might not fully address their loved ones’ and beneficiaries’ financial security.
How Correct Capital Helps: Our team supports business owners in exit planning, helping them decide how to manage the proceeds from a sale. 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.
Other services we offer in Grand Rapids, MI include:
- Family Wealth Planning
- Financial Planning for Business Owners
- Comprehensive Financial Planning
- Retirement Income Planning
- Investment Planning
- Retirement Financial Planning
- Independent Financial Advisor
- Roth Conversion
- Investment Management
- 401(k) Audit
Tax Planning in Grand Rapids, MI | Correct Capital Wealth Management
At Correct Capital, our Grand Rapids, MI 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 Grand Rapids, MI financial advisor, tax professional, and legal advisor. For assistance with tax planning, retirement planning, or other financial needs in Grand Rapids, MI, reach out to Correct Capital at 877-930-4015 or contact us online.
