Tax Planning
Tax Planning in Salinas, CA. 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, we don’t offer tax advice, but we work alongside local Salinas, CA residents, families, and business owners 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.
Tax Planning for Salinas, CA Individuals and Families
Smart tax planning can help individuals and families increase their retirement savings and provide them with more money for both the present and the future. Here are some key points when tax planning in Salinas, CA:
- Standard Deduction vs. Itemizing —
The standard deduction is a automatic amount that reduces your taxable income without needing specific proof of deductions. 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 trade-off is that itemizing takes more time, as you need to provide evidence for each deduction. A financial planner in Salinas, CA can work with you to decide whether using 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. With a traditional IRA, your contributions may be deductible, and you defer taxes until you take distributions. On the other hand, Roth IRAs do not offer a deduction for contributions, yet allow your money to grow tax-free. The ideal choice depends on your personal financial and tax situation. 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. In 2024, the maximum contribution limit for a 401(k) is $23,000, with an additional $7,500 allowed if you’re 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, with contributions that can be deducted.
- Tax-Loss Harvesting —
By selling securities at a loss, you can offset capital gains taxes owed on gains from other investments. Tax-loss harvesting is especially useful for short-term gains, where tax rates are higher than for 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 —
If you have unreimbursed medical expenses, you may be able to deduct amounts exceeding 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. 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:
- Religious, scientific, educational, or anti-cruelty non-profit organizations for animals and children
- Non-profits supporting veterans
- A domestic fraternal organization that operates under a "lodge system" as long as the funds are directed toward charity
- Cemetery companies or organizations
- Government agencies at any level within the U.S. when funds are for public benefit
- In some cases, Canadian, Mexican, or Israeli organizations if they qualify as U.S.-equivalent charities
*According to IRS Publication 526 (2023), Charitable Contributions
If you start a Donor-Advised Fund, you’re able to contribute a significant amount right away for an instant tax deduction and suggest distributions over the coming years.
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.
By working with an experienced financial adviser for tax planning in Salinas, CA, you can reduce your tax liability this year and create a plan for managing taxes through retirement. Correct Capital is here to help you keep more of your money today and establish a financially secure future.
Common Tax Planning Mistakes for Salinas, CA Individuals and Families
Effective tax planning is crucial for your family’s financial health. Unfortunately, errors in tax planning often cause people to owe more or miss savings opportunities. Below are some common tax planning errors and how Correct Capital can help you avoid 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: 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 —
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: 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: We offer guidance on tax-efficient investing, helping you select suitable investment vehicles and strategies to reduce taxes on dividends, interest, and capital gains.
- Failing to Plan for Life Changes —
Significant life changes, such as marriage, divorce, becoming a parent, or purchasing a home, can greatly affect your tax obligations. Ignoring these life events may cause surprise tax liabilities.
How Correct Capital Helps: We help you adjust your tax strategy based on life changes, allowing you to take advantage of new tax breaks while remaining compliant with tax laws.
- 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 provide tax advantages for covering medical costs, but many eligible individuals miss out by not contributing.
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 —
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: We work with you to adjust your withholding allowances for improved cash flow and reduced surprises during tax season.
- 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 Salinas, CA Business Owners
Business owners in Salinas, CA can utilize tax planning strategies to maximize retained earnings in their business. Keep the following in mind for effective tax planning for your Salinas, CA business:
- Review the Structure of Your Business —
Your business structure plays a significant role in tax planning and should be carefully evaluated. 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 —
Setting up retirement plans like 401(k)s, 403(b)s, and similar options can help reduce tax obligations. The 2019 "SECURE" Act introduced new retirement plan rules, so consulting a financial advisor about their tax implications may be beneficial.
If you’re a high-earning business owner with high-income employees, a Cash Balance Pension Plan could be advantageous, though it requires large contributions.
- 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 your business activities in Salinas, CA, both you and your employees could use a company vehicle and deduct the associated costs. You can take this deduction using one of two methods:
- Deduct 67 cents per mile using the standard mileage rate, which applies to gas and electric vehicles alike; 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. See if employees are open to receiving fringe benefits as part of their pay package rather than a higher paycheck. 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 allow for reimbursing employees for specific expenses, like travel, meals, or entertainment, without these amounts counting 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. Potential carryover deductions are home office deductions, net operating losses, business credits, and capital losses.
Tax laws for businesses are constantly evolving. Partnering with a professional tax planner in Salinas, CA means they work with you and your tax expert to identify strategies for enhancing long-term financial outcomes.
Common Tax Planning Mistakes for Salinas, CA 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. 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. This issue frequently affects small businesses, freelancers, and companies with irregular income.
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 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: 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 approach can prevent businesses from taking advantage of strategic investment or growth opportunities.
How Correct Capital Helps: We deliver thorough tax planning to support future growth, optimize reinvestment, and ensure efficient cash flow management.
- Neglecting Exit and Estate Planning —
Many business owners don’t establish a succession plan to handle the financial details involved in selling their business. While they may focus heavily on operations, they might miss planning for how to manage and allocate the sale proceeds in a tax-efficient way. Without proper estate planning, owners might not fully address their loved ones’ and beneficiaries’ financial security.
How Correct Capital Helps: We provide assistance in exit planning, helping business owners determine where to allocate sale proceeds. We focus on defining the purpose of these funds and addressing them from an estate planning perspective, ensuring beneficiaries are considered and taxes are minimized through careful planning.
Tax Planning in Salinas, CA | Correct Capital Wealth Management
At Correct Capital, our Salinas, CA financial advisors and tax planners understand how essential the financial health of your family or business is, both now and in the future. That’s why we adhere to the fiduciary standard and our I.O.U. promise: all the advice we offer is independent, objective, and unbiased. With tax laws constantly evolving, it’s essential to have a strong team in place, including your Salinas, CA financial advisor, tax professional, and attorney. If you need help with tax planning, retirement strategies, or other financial services in Salinas, CA, call Correct Capital today at 877-930-4015 or get in touch online.
