Reduce Your Tax Liability With Correct Capital's Financial Advisors in Madison County, IL
Tax Planning in Madison County, IL. Tax liability refers to how much taxes you pay each year to local, state, and federal entities. While Uncle Sam will always collect some percentage of your earnings or profits, there are perfectly legal ways to reduce how much money you have to pay. Tax planning is also essential for successful retirement planning. At Correct Capital, we partner with local Madison County, IL individuals, families, and businesses to find creative and proven ways to reduce how much they owe. Speak to Correct Capital's tax planners and fiduciary advisors today at 314-930-401(k), contact us through our website, or read on to see how prudent tax planning can benefit you.
Tax Planning for Madison County, 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. Ways to reduce your tax liability when tax planning in Madison County, IL include:
- Standard Deduction vs. Itemizing —
The standard deduction is a no-questions-asked figure that reduces the amount of income you are taxed on. In 2022 and 2023, the standard deductions are:
- $12,950 for single filers
- $25,900 for married, filing jointly
- $12,950 for married, filing separately
- $19,400 for head of household
- $13,850 for single filers
- $27, 700 for married, filing jointly
- $13,850 for married, filing separately
- $20,800 for head of household
If your deductible income is more than the above, you can count up each deduction you're eligible for one by one. The disadvantage is that doing your taxes takes longer, and you will have to document why you are eligible for the deduction when you send your returns.
- Review How You Are Saving For Retirement —
Roth IRAs and Traditional IRAs differ in how they affect your taxes. Savings 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 are not deductible, but you will not be taxed on the withdrawal, as long as you are over 59 1/2 and have had the account for at least five years. Your unique situation will determine whether a Traditional or Roth IRA is preferable in terms of tax planning. For instance, if you anticipate have more tax liability down the road, you can convert money from a traditional IRA to a Roth IRA to pay taxes on the transfer, and enjoy tax-free withdrawals when you need the money in retirement.
If you contribute to a 401(k) plan through your work, you can choose to have earnings 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, or up to $27,000 if you're 50 or older. For 2023, you can deposit as much as $22,500 with an extra $7,500.
If you're have freelance income, there are also retirement plans available, like a One-Participant 401(k) Plan, and you can deduct your contributions there.
- Tax-Loss Harvesting —
If you sell securities at a loss, you can offset the amount of capital gains tax you would be liable for if other securities sold at a profit. This strategy 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 the future.
- Consider Paying Next Year's Bills Now —
If you have unreimbursed medical expenses, you can deduct those that are higher 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 in order to qualify for a Lifetime Learning Credit.
- If Married, Filing Jointly or Separately —
The IRS reports that roughly 95% of married couples file jointly. It helps spouses qualify for a higher standard deduction, as well as a variety of tax credits not available to single filers. But, if both spouses have a high income, filing separately may reduce their combined tax liability. If one spouse has a lot of medical expenses, it may make sense to file separately to meet the 7.5% limit for unreimbursed medical expenses.
- Make Charitable Donations —
You can deduct up to 60% of your adjusted gross income when donating to certain organizations. Qualifying charities include:
- 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," as long as 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 open 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 of age, you can make what's known as a qualified charitable distribution by transferring up to $100,000 a year from a traditional IRA directly to a non-profit organization tax-free. 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 Madison County, IL|With the help a financial planner in Madison County, 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 Madison County, IL Businesses
Business owners can use effective tax planning to keep more money in their business. Ways to owe less in taxes when tax planning for your Madison County, IL business include:
- Evaluate 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 affect both your corporate and your individual tax rate.
- 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 offers new benefits for employers who offer 401(k)s and SIMPLE IRAs with automatic enrollment, so it's likely in your best interest to consult a financial advisor in Madison County, IL about how those changes affect your tax planning.
a good idea if you and your employees are both higher-earning. While you must significant amounts of money each year, the tax benefits are high.
- Consider Other Benefits For Your Employees —
Merely offering more money can result in higher employment tax costs. See if your employees would be open to fringe benefits as part of their compensation, instead of just rewarding them with a raise. Common fringe benefits include medical insurance, group life insurance, childcare assistance, transportation reimbursement, meals, family or medical leave, or paying for career-boosting courses.
You can also use accountable plans to reimburse employees for certain expenses like travel, meals, or entertainment without having to report them as employee income.
- Put Your Family On the Payroll —
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 your spouse works in the business, you can double your retirement plan contributions.
- Have a Company Vehicle —
Depending on the nature of your business, you and your employees may be able to use a company vehicle and subtract transportation costs from your taxable profits. There are two different means of deducting those costs:
- Take advantage of the standard mileage rate to deduct 58.5 cents per mile (for January to June in 2022) or 62.5 cents per mile (for the last half of 2022); or
- Document your actual expenses, like maintenance, registration fees, and gas, and determine if your deduction would be more than the standard mileage rate
- Consider Tax Loss Carryover —
You're allowed to carryover some deductions into another year. Common carryover deductions are a home office deduction, net operating losses, business credits, and capital losses.
Tax laws for businesses are always changing. A key benefit of working with a knowledgeable Madison County, IL tax planner is that they will work with you and the person who prepares your taxes to identify if there are ways to improve your long-term financial success.
Other services we offer in Madison County, IL include:
- Small Business Retirement Plans
- Social Security Consultants Near Me
- Retirement Calculator
- Retirement Planning
- Rollover 401(k)
- Wealth Management
- 401k Companies
- Financial Advisor
- Asset Management
Tax Planning in Madison County, IL | Correct Capital Wealth Management
At Correct Capital, our Madison County, IL tax planners know strong financial health is key to your overall success. That is why we hold ourselves to the fiduciary standard: we are legally and ethically bound to act in your best interest. With tax law always changing, it's important to put a team around you that will help, like your Madison County, IL financial advisor, tax preparer, and attorney. For help with tax planning, asset management, or any other financial services in Madison County, IL, call Correct Capital today at 314-930-401(k) or contact us online.