Tax Planning
Tax Planning in Huntsville, AL. 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, we don’t offer tax advice, but we partner with local Huntsville, AL people, families, and companies to find inventive and reliable ways to lower their tax obligations. For instance, we might advise an individual to maximize deductible contributions to their retirement plan, which can help lessen tax costs. Reach out to Correct Capital's tax planners and fiduciary advisors today at 877-930-4015, connect with us online, or keep reading to learn how proactive tax planning can benefit you.
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Tax Planning for Huntsville, AL Individuals and Families
Effective tax strategies can help individuals and families increase their retirement savings and offer them more money for both today and in the near future. Consider these elements when tax planning in Huntsville, AL:
- Standard Deduction vs. Itemizing —
The standard deduction is a automatic amount that allows a straightforward deduction from your taxable income. 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
When your deductible income is more than the standard deduction, itemizing each eligible deduction may be advantageous. The drawback is that itemizing can be time-consuming and requires proof of each deduction. A financial planner in Huntsville, AL can assist in determining whether taking the standard deduction or itemizing is more suitable.
- Review Your Retirement Accounts —
Roth IRAs and Traditional IRAs both provide tax advantages, though in different ways. Contributions to a traditional IRA may be fully or partially deductible, and taxes are only applied upon withdrawal. Roth IRA contributions, in contrast, are not deductible but allow for tax-free growth on your investments. The best option depends on your individual financial picture and tax outlook. For example, if you anticipate higher taxes in the future, you might consider transferring money from a traditional IRA to a Roth IRA—a process known as a Roth conversion—paying taxes now but securing future tax-free growth.
If you have a 401(k) plan with your employer, it's possible to defer part of your salary directly into your 401(k) account. The 401(k) contribution limit for 2024 is $23,000, along with an additional $7,500 for individuals 50 or older.
If you're self-employed or have freelance income, you may also establish a retirement plan that suits your situation. 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 approach is particularly beneficial for short-term capital gains, which are often taxed at higher rates 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. 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 —
Approximately 95% of married couples choose to file jointly, which is the only way to qualify for certain tax credits and deductions. 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. According to IRS Publication 526, qualifying organizations include:
- Non-profits that are religious, scientific, educational, or focused on preventing cruelty to animals or children
- Veterans' organizations
- Domestic fraternal organizations operating under a "lodge system" if funds go to charity
- Cemetery companies or organizations
- Federal, state, local, or Native government entities, provided funds are for public purposes
- 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.
Once you reach age 70½, you’re eligible to make a qualified charitable distribution by transferring up to $105,000 annually from your IRA directly to a charity without tax consequences. Once you’re 73 or above, the donation can also be applied as your required minimum distribution, potentially lowering both future distribution requirements and tax obligations.
When you choose an experienced financial adviser for tax planning in Huntsville, AL, you’re able to reduce current tax liability while planning for taxes well into retirement. 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 Huntsville, AL Individuals and Families
Smart tax planning is vital for your family’s overall financial security. 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 people miss out on important tax credits and deductions, such as the Earned Income Tax Credit, Child Tax Credit, or deductions for education and medical expenses.
How Correct Capital Helps: Our team checks your tax return for any missed credits and deductions, with the goal of increasing your refund or decreasing your tax bill.
- 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: We work with you to create efficient record-keeping practices and gather needed documentation, so all records are accessible when tax season arrives or if an audit occurs.
- 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 —
Major life events like marriage, divorce, having a child, or buying a home can have a substantial impact on your tax situation. Ignoring these life events may cause surprise tax liabilities.
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. Neglecting estimated tax payments may result in penalties.
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: 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: Our team assists you in establishing education savings plans that feature tax-deferred growth and potential state tax deductions.
- Not Reviewing Withholding Allowances —
Having too much or too little tax withheld from your paycheck can lead to either a large refund or an unexpected tax bill.
How Correct Capital Helps: Our team helps you adjust your W-4 form to achieve accurate withholding, enhancing cash flow and preventing unexpected tax bills.
- 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 Huntsville, AL Business Owners
Business owners in Huntsville, AL can benefit from effective tax planning to retain more money within their business. Here are some factors to consider for tax planning in your Huntsville, AL business:
- Review the Structure of Your Business —
The structure of your business impacts tax planning and should be carefully considered. Structuring your business as an LLC, sole proprietorship, partnership, or S or C corporation will affect both corporate and individual tax rates.
- 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 Huntsville, AL 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 —
Based on your Huntsville, AL business type, you and your employees may qualify to use a company vehicle with deductible transportation 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
- Keep a record of actual expenses, including maintenance, registration, and gas, to see if this results in a larger deduction than the standard mileage rate.
- 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 —
If certain deductions aren’t usable this year, you may be able to apply them in a different tax year. Examples of carryover deductions include home office expenses, net operating losses, business credits, and capital losses.
Business tax laws change frequently. One advantage of working with a professional Huntsville, AL tax planner is that they will collaborate with you and your tax professional to find ways to improve long-term financial success.
Common Tax Planning Mistakes for Huntsville, AL Businesses
With smart tax planning, businesses can minimize liabilities and enhance profitability. Yet, numerous businesses make frequent tax errors that result in increased tax bills, overlooked deductions, and potential penalties. Listed below are typical tax planning mistakes businesses make and how Correct Capital assists in avoiding 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 help businesses accurately calculate and schedule estimated tax payments, ensuring compliance with IRS deadlines and preventing unnecessary penalties.
- Neglecting Retirement Plan Contributions for Owners and Employees —
Many companies miss the opportunity to use retirement contributions to lower their taxable income. 401(k)s, SEP IRAs, and Solo 401(k)s offer significant tax advantages for business owners and employees.
How Correct Capital Helps: We assist businesses in establishing retirement plans that cut taxes and appeal to prospective and current employees.
- Not Planning for Profitability and Cash Flow —
Focusing solely on cutting current taxes often leads businesses to miss out on planning for sustained growth and profitability. This short-term focus can result in missed chances for strategic investments or tax-efficient growth strategies.
How Correct Capital Helps: Our team provides tax planning that goes beyond short-term cuts, supporting businesses in planning for growth, reinvesting, and handling cash flow efficiently.
- Neglecting Exit and Estate Planning —
Business owners often fail to create a succession plan to address the financial aspects of selling their business. Often focused on day-to-day business, owners can overlook how to handle proceeds from a sale to minimize taxes. Additionally, without estate planning, owners may miss opportunities to ensure beneficiaries and loved ones are taken care of.
How Correct Capital Helps: We assist business owners with exit planning, guiding them in making informed decisions on how to allocate sale proceeds. We aim to identify the purpose of sale proceeds and apply estate planning principles, so beneficiaries are accounted for and taxes are efficiently managed.
Tax Planning in Huntsville, AL | Correct Capital Wealth Management
Our Huntsville, AL financial advisors and tax planners at Correct Capital know that your financial security—whether for family or business—is crucial now and in the long term. To uphold your trust, we commit to the fiduciary standard and our I.O.U. promise—all advice is independent, objective, and unbiased. Since tax laws are always changing, it’s vital to surround yourself with a solid team, such as your Huntsville, AL financial advisor, tax professional, and legal advisor. For assistance with tax planning, retirement planning, or other financial needs in Huntsville, AL, reach out to Correct Capital at 877-930-4015 or contact us online.
