Tax PlanningReduce Your Tax Liability With Correct Capital's Financial Advisors in St. Louis
Tax Planning in Rochester, NY. Tax liability refers to the amount you owe in taxes to local, state, and federal authorities. Although paying taxes is unavoidable, various lawful strategies can minimize how much you owe. Tax planning is also vital to successful retirement planning. At Correct Capital, although we do not provide tax advice, we partner with local Rochester, NY residents, families, and business owners to explore effective and tried-and-true ways to decrease their tax burden. 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 Rochester, NY Individuals and Families
Effective tax strategies can help individuals and families increase their retirement savings and provide them with more money for both the present and the future. Consider these elements when tax planning in Rochester, NY:
- Standard Deduction vs. Itemizing —
The standard deduction is a fixed 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
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 Rochester, NY can work with you to decide whether claiming the standard or itemized deduction is more beneficial.
- Review Your Retirement Accounts —
Roth IRAs and Traditional IRAs both present unique tax benefits. 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 ideal choice depends on your personal financial and tax situation. 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.
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, enabling 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. Tax-loss harvesting is especially useful for short-term gains, where tax rates are higher than for long-term gains. You can deduct up to $3,000 in capital losses each year, with any remaining losses rolled over into future tax years.
- Consider Paying Next Year's Bills Now —
Medical expenses not reimbursed by insurance can be deducted if they exceed 7.5% of your AGI. 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. 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. Per IRS Publication 526, eligible organizations may include the following:
- Religious, scientific, educational, or anti-cruelty non-profit organizations for animals and children
- Veterans' organizations
- Fraternal organizations under a "lodge system" provided funds are used for charity
- Non-profits or companies associated with cemeteries
- Federal, state, local, or Native government entities, provided funds are for public purposes
- 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.
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.
When you choose an experienced financial adviser for tax planning in Rochester, NY, 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 Rochester, NY Individuals and Families
Smart tax planning is vital for your family’s overall financial security. Yet, many people unintentionally make errors that could result in higher tax liabilities or missed savings opportunities. Here are a few frequent tax planning mistakes and ways Correct Capital can assist in preventing them:
- Not Maximizing Retirement Contributions —
When you don’t contribute the maximum allowable to tax-advantaged retirement accounts like Traditional IRAs, Roth IRAs, or 401(k)s, you may miss out on valuable tax deductions and long-term growth.
How Correct Capital Helps: We evaluate your financial situation to ensure you’re contributing as much as feasible, which can reduce taxable income while building a strong retirement foundation.
- 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 —
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 —
When investment decisions are made without considering tax consequences, returns may be reduced. This often happens when asset location strategies are ignored or tax losses are not harvested.
How Correct Capital Helps: Our team provides insight on tax-efficient investment choices, assisting you in minimizing taxes on dividends, interest, and capital gains through strategic asset selection.
- Failing to Plan for Life Changes —
Life events, including marriage, divorce, welcoming a child, or buying a property, often alter your tax landscape considerably. 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. Failure to do so can lead to penalties and interest.
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 —
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 guide you in setting up education savings accounts that provide tax-deferred growth and may offer state tax deductions.
- 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: 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 —
Not properly documenting charitable donations can lead to missed tax 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 Rochester, NY Business Owners
Business owners in Rochester, NY can benefit from effective tax planning to retain more money within their business. Consider these points when tax planning for your Rochester, NY business:
- Review the Structure of Your Business —
The structure of your business impacts tax planning and should be carefully considered. Forming your business as an LLC, sole proprietorship, partnership, or S or C corporation will influence both the corporate and personal tax rates.
- 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. With changes under the "SECURE" Act of 2019, speaking to a financial advisor in Rochester, NY about retirement plan tax benefits is recommended.
For business owners and employees with higher incomes, a Cash Balance Pension Plan can offer significant tax savings, even if it requires a sizable investment.
- Have Your Family Work For The Business —
Hiring family members can bring tax benefits. Children can work for you tax-free up to $14,600, and they can start saving in a ROTH IRA. If your spouse works in the business, you may also double your retirement contributions.
- Use a Company Vehicle —
Depending on the nature of your Rochester, NY business, you and your employees may be able to use a company vehicle and deduct the transportation costs. There are two options for claiming this deduction:
- 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. Explore the possibility of offering fringe benefits instead of wage raises. Examples that could help reduce your tax liability include medical insurance, group life insurance, childcare support, transportation reimbursements, meal programs, family or medical leave, and reimbursement for continued education.
Accountable plans can also be used to reimburse employees for expenses like travel, meals, or entertainment without these amounts being reported as employee 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.
Business tax laws change frequently. Partnering with a professional tax planner in Rochester, NY means they work with you and your tax expert to identify strategies for enhancing long-term financial outcomes.
Common Tax Planning Mistakes for Rochester, NY Businesses
Effective tax planning allows businesses of all sizes to reduce tax liabilities and increase 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 —
Some businesses miss or underpay estimated quarterly taxes, which often leads to IRS penalties and added interest. Small businesses, freelancers, and companies with fluctuating income are particularly susceptible to this.
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 —
Many companies miss the opportunity to use retirement contributions to lower their 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 short-term focus can result in missed chances for strategic investments or tax-efficient growth strategies.
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. Often focused on day-to-day business, owners can overlook how to handle proceeds from a sale to minimize taxes. Lacking estate planning, business owners risk missing chances to provide for beneficiaries and loved ones.
How Correct Capital Helps: We provide assistance in exit planning, helping business owners determine where 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 Rochester, NY | Correct Capital Wealth Management
Our Rochester, NY 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. 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 Rochester, NY financial advisor, tax specialist, and attorney. For support with tax planning, retirement planning, or any other financial concerns in Rochester, NY, contact Correct Capital at 877-930-4015 or reach out online.