Tax Planning
Tax Planning in Richmond, VA. Tax liability refers to the amount you owe in taxes to local, state, and federal authorities. While it’s inevitable that a part of your earnings or profits goes to taxes, there are numerous legal strategies to lessen your tax burden. Tax planning is also vital to successful retirement planning. At Correct Capital, we don’t give tax advice; however, we work alongside local Richmond, VA individuals, families, and businesses 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.
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Tax Planning for Richmond, VA Individuals and Families
Effective tax strategies can help individuals and families increase their retirement savings and offer them more money for both now and years to come. Here are some key points when tax planning in Richmond, VA:
- Standard Deduction vs. Itemizing —
The standard deduction is a preset 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 trade-off is that itemizing takes more time, as you need to provide evidence for each deduction. A financial planner in Richmond, VA can help determine whether taking the standard deduction or itemizing is more advantageous.
- Review Your Retirement Accounts —
Roth IRAs and Traditional IRAs both offer tax benefits, but in distinct ways. A traditional IRA allows for contributions that may be deductible, with taxes deferred until you withdraw funds. Roth IRA contributions, in contrast, are not deductible but allow for tax-free growth on your investments. Which account benefits you most will depend on your specific tax planning needs. One potential strategy is a Roth conversion, which moves funds from a traditional to a Roth IRA, letting you pay taxes now and enjoy tax-free growth later.
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. For 2024, you can contribute up to $23,000 to a 401(k), plus an extra $7,500 if you are over age 50.
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 —
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. Each year, up to $3,000 in capital losses can be deducted, and extra losses can be carried forward to future 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 —
Roughly 95% of married individuals file jointly, as this is required for some tax benefits and credits. However, if one spouse is a higher earner, filing separately might place them in a lower tax bracket. In situations where one spouse has substantial medical expenses, separate filing can help reach the medical deduction threshold.
- 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:
- Religious, scientific, educational, or anti-cruelty non-profit organizations for animals and children
- Non-profits supporting veterans
- Fraternal organizations under a "lodge system" provided funds are used for charity
- Non-profits or companies associated with cemeteries
- Any U.S. federal, state, local, or Native governments and subdivisions, as long as funds are for public use
- Certain Canadian, Mexican, or Israeli organizations that would be considered charitable under U.S. law
*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.
If you are over 70½, you can make a qualified charitable distribution by transferring up to $105,000 annually from a traditional IRA directly to a charity, tax-free. If you are 73 or older, that donation also counts toward your required minimum distribution, which may reduce both your future required distributions and tax burden.
When you choose an experienced financial adviser for tax planning in Richmond, VA, 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 Richmond, VA Individuals and Families
Smart tax planning is vital for your family’s overall financial security. However, mistakes in tax planning can lead to paying more in taxes than necessary or missing out on potential savings. 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 —
Valuable tax credits and deductions—like the Earned Income Tax Credit, Child Tax Credit, and deductions for medical and educational expenses—are often overlooked by individuals.
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 —
When financial records are disorganized, it’s easier to overlook deductions and face issues at tax time. Proper documentation is critical for substantiating claims, especially during audits.
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 —
Life events, including marriage, divorce, welcoming a child, or buying a property, often alter your tax landscape considerably. Neglecting to adjust for these changes can lead to unexpected 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: We help you prepare your cash flow to cover estimated tax payments, avoiding fines and added interest.
- Not Utilizing Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) —
Contributing to HSAs and FSAs offers tax savings for medical expenses, yet many people overlook these options.
How Correct Capital Helps: We offer guidance on the benefits of HSAs and FSAs, assessing whether they suit your circumstances and helping you allocate pre-tax dollars for healthcare expenses to lower taxable income.
- Overlooking Education Savings Plans —
Failing to consider 529 college savings plans may mean missing valuable tax benefits for education savings.
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 —
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: We work with you to adjust your withholding allowances for improved cash flow and reduced surprises during tax season.
- Missing Opportunities for Charitable Contributions —
If you don’t track or plan your charitable contributions, you could lose valuable deduction opportunities.
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 Richmond, VA Business Owners
Business owners in Richmond, VA can benefit from effective tax planning to retain more money within their business. Here are some factors to consider for tax planning in your Richmond, VA 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 —
Providing retirement plans such as 401(k)s, 403(b)s, or other defined contribution plans is an effective way to reduce tax liability. The 2019 "SECURE" Act introduced new retirement plan rules, so consulting a financial advisor about their tax implications may be beneficial.
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 —
Bringing family into the business offers tax perks, such as allowing children to work tax-free up to $14,600, and they can even start contributing to a ROTH IRA. Employing your spouse can allow for increased retirement contributions, potentially doubling your retirement savings.
- Use a Company Vehicle —
Depending on the nature of your Richmond, VA business, you and your employees may be able to use a company vehicle and deduct the transportation costs. This deduction can be made in two ways:
- Take the standard mileage deduction of 67 cents per mile for gas and electric vehicles; or
- Maintain records of actual costs like maintenance, registration, and fuel to calculate whether this deduction is greater than the standard mileage rate.
- Consider Fringe Benefits For Your Employees —
Increasing wages for employees can drive up employment tax expenses. Explore the possibility of offering fringe benefits instead of wage raises. 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. Examples of carryover deductions include home office expenses, net operating losses, business credits, and capital losses.
Tax laws for businesses are constantly evolving. Partnering with a professional tax planner in Richmond, VA means they work with you and your tax expert to identify strategies for enhancing long-term financial outcomes.
Common Tax Planning Mistakes for Richmond, VA Businesses
With smart tax planning, businesses can minimize liabilities and enhance profitability. Unfortunately, common tax mistakes can cause businesses to pay more, miss deductions, and risk penalties. Below are some of the most common tax planning errors businesses make and how Correct Capital can help you avoid them.
- Not Paying Estimated Quarterly Taxes —
Some businesses miss or underpay estimated quarterly taxes, which often leads to IRS penalties and added interest. This issue frequently affects small businesses, freelancers, and companies with irregular 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 businesses don’t fully utilize retirement plan contributions as a way to lower taxable income. Options such as 401(k)s, SEP IRAs, and Solo 401(k)s deliver notable tax benefits for both owners and staff.
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 —
Some businesses only focus on minimizing their current tax bill, neglecting long-term growth and profitability. This approach can prevent businesses from taking advantage of strategic investment or growth opportunities.
How Correct Capital Helps: We offer comprehensive tax planning that extends beyond immediate deductions, helping businesses plan for growth, reinvest profits, and manage cash flow effectively.
- Neglecting Exit and Estate Planning —
Many business owners don’t establish a succession plan to handle the financial details involved in selling their business. Owners frequently concentrate on operations and may neglect how to allocate proceeds from a sale in a tax-effective manner. Without proper estate planning, owners might not fully address their loved ones’ and beneficiaries’ financial security.
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 Richmond, VA | Correct Capital Wealth Management
At Correct Capital, our Richmond, VA financial advisors and tax planners understand how essential the financial health of your family or business is, both now and in the future. For this reason, we follow the fiduciary standard and our I.O.U. promise, meaning that every recommendation we provide is independent, objective, and unbiased. As tax regulations evolve, it’s important to work with a team that includes your Richmond, VA financial advisor, tax specialist, and attorney. If you need help with tax planning, retirement strategies, or other financial services in Richmond, VA, call Correct Capital today at 877-930-4015 or get in touch online.
