Reduce Your Tax Liability With Correct Capital's Financial Advisors in O'Fallon, IL
Tax Planning in O'Fallon, IL. Tax liability is how much you owe in taxes to local, state, and federal authorities. Even though Uncle Sam will always collect some percentage of your earnings or profits, The IRS allows for several 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 O'Fallon, IL individuals, families, and businesses in the O'Fallon, IL area to find creative and time-tested strategies for reducing their tax liability. Speak to Correct Capital's financial and fiduciary advisors today at 314-930-401(k), reach out online, or read on to see how diligent tax planning can benefit you.
Tax Planning for O'Fallon, IL Individuals and Families
Smart tax planning is essential for individuals and families who want to increase their retirement savings and afford them more money for both now and the near future. Ways to reduce how much you owe when tax planning in O'Fallon, IL include:
- Standard Deduction vs. Itemizing —
The standard deduction is a no-questions-asked figure that ensures all tax payers have at least some income that won't be taxed. In 2022 and 2023, that flat-rate is:
- $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 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 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. Contributions to 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 the money grows tax free. 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 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 defer income from your paycheck and have it placed directly in your 401(k). 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 deposit 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 the money 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. Tax-loss harvesting is utilized more with short-term capital gains, as the tax rate is often higher than long-term. The maximum deductible amount is $3,000 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 deduct those that are greater than 7.5% of your adjusted gross income. Paying property taxes early can also help you reduce your taxable income, 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 —
More than 9 out of 10 married couples choose to file joint tax returns. It helps spouses qualify for a higher standard deduction, in addition to a variety of tax credits not available to single filers. However, if both spouses earn high incomes, they may be in a lower tax bracket if they file separately. If one spouse received substantial medical care in a given year, it may be preferable to file separately to qualify for the 7.5% limit for unreimbursed medical expenses.
- Donate to Charity —
You can deduct up to 60% of your adjusted gross income via charitable donations. Accepted charities are:
- 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 donations are used for charity
- Cemetery organizations
- Any government entities, as long as the donations are for public use
- In many cases, a Canadian, Mexican, or Israeli organization, as long as the organization meets the criteria for a charity under United States law
If you open a Donor-Advised Fund, you can contribute a bulk amount now for an immediate tax reduction, and recommend how the funds are distributed over the years that follow.
If you are older than 70½, you can make what's called a qualified charitable distribution by transferring no more than $100,000 a year from a traditional IRA directly to a charity without having to pay taxes on it. If you are 72 or older, that donation qualifies as your required minimum distribution.
When you use an experienced financial planner for your tax planning in O'Fallon, IL|With the help a financial adviser in O'Fallon, IL, they can help put more money in your pocket now while also setting you up for a financially secure retirement.
Tax Planning for O'Fallon, 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 O'Fallon, IL business include:
- Assess How Your Business Is Structured —
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 have consequences for how much you pay in taxes both as a business and individually.
- Review the Retirement Plans You Offer Employees —
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 may be best to meet with a financial advisor in O'Fallon, IL about how they may apply to your business.
For higher-earning business owners with higher-earning employees, consider a Cash Balance Pension Plan. While a business owner must contribute several hundred thousand dollars each year, the tax benefits are high.
- Consider Fringe Benefits For Your Employees —
Increasing your employees' wages can result in higher employment tax costs. Ask your employees if they would be open to other benefits as part of their compensation, instead of just giving them more money. Common fringe benefits include medical insurance, group life insurance, help with childcare costs, transportation reimbursement, meals, more paid time off, 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.
- Put Your Family to Work —
Your kids can work for you tax-free on income up to $12,000, and you can help kick-start their retirement savings through an account like a ROTH IRA. You can double your retirement plan contributions if your spouse work for the business.
- Buy a Company Vehicle —
Depending on the specifics of your business, you and your employees may be able to use a company vehicle and subtract transportation expenses from your taxable profits. There are two different ways of deducting those expenses:
- Take advantage of the standard mileage rate to deduct 58.5 cents per mile (for the first half of 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 determine if your deduction would be more than the standard mileage rate
- Look into Tax Loss Carryforward —
If you're not able to make certain deductions this year, you may be able to carry them over 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 in flux. One advantage of consulting with a knowledgeable O'Fallon, 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 O'Fallon, 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 O'Fallon, IL | Correct Capital Wealth Management
At Correct Capital, our O'Fallon, IL tax planners 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 O'Fallon, IL financial advisor, tax professional, and attorney. For help with tax planning, asset management, or any other financial services in O'Fallon, IL, call Correct Capital today at 314-930-401(k) or contact us through our website.