It’s year-end tax planning time! Most taxpayers are still trying to wrap their heads around optimum planning with the new Trump Tax Plan. That’s critical, but so are basic tax planning strategies.
Let’s start with some basic planning strategies for business owners and investors.
In order to pay less tax, something must change.
There are really only 4 main categories that consistently bring tax saving results:
- Change the taxpayer
- Change the year
- Change the type of income
- Change the deductions
Change the Taxpayer
Are you using the right business structure?
- Sole proprietorship: Unlimited risk, higher tax (for self-employment tax)
- Single member LLC: Taxed as a Schedule C unless you elect a tax structure.
- Multi-member LLC: Tax as a Partnership, could mean higher tax.
- LLC electing S Corp, or S Corp: Usually the best for business.
- LLC electing C Corp or C Corp: Best as your income gets higher or if you want to take advantage of better C Corp benefits. At higher income levels with a Service Company, the C Corporation may be the best choice with the new tax law changes.
**WARNING ON C CORPS! Make sure you read the blog tomorrow, Saturday 11/2/19, about 3 questions you must ask yourself regarding C Corporations BEFORE you form one.
Got a question on the best business structure? There are several ways to get a question answer:
Formulate your customized tax strategy plan. Set up a personal consultation with me. To book before the appt spots are all gone, please go to: https://www.ustaxaid.com/consultation/
More affordable solution:
Join the coaching classes. For just $99 per month, you get two Home Study Courses, live coaching sessions twice per month and the ability to ask questions before, during and after the coaching sessions.
NOTE: There is an exception to the 2 Home Study Courses per month when we do the year end planning and if there is breaking tax news we need to cover. In both cases, the info is so up-to-the-minute that there is not enough time to write, edit and produce a Home Study Course.
Make sure you are part of the November sessions on the 1st and 3rd Wednesday at 5 pm Pacific. We are focusing on year-end tax strategies. Once you join you can send me in your info ahead of time to Coaching@USTaxAid.com, I can talk about your specifics without disclosing your name or personal details (since it is taped).
If you’re not yet a member of coaching, you can join at: https://www.ustaxaid.com/coaching-program/
You can ask your question at https://www.ustaxaid.com/tax-question/. Please note that the response to these questions will be in a blog post, like the ones that are posting at USTaxAid.com on Friday, Saturday and Sunday each week. It may take up to 30 days to get a blog response, depending on volume of questions.
Do you need to pay some dependents for work they legitimately do?
- Effective 1/1/2018, with the Trump Tax Plan, you lost the dependency exemption. Pay your kids and they can take their own standard deduction.
- Three rules if you employ your family:
- Have a written job description
- Track work hours
- Pay a reasonable wage
- Moving income to a dependent reduces the effective tax bracket
- Benefits paid to employed dependent are tax deductible
Change the Year
Tax delayed is almost always tax reduced. Plan your deductions and tax credits so you can maximize deductibility when there are restrictions
Review this with your USTaxAid CPA before year end. What income and expenses should you move to another year? Which ones should you move to this year?
Change the Type of Income
Move tax-deferred income to tax-free income. Move ordinary or earned income to passive or investment income. This is how the richest 1% reduces their effective tax rate.
Change the Deductions
Consider a pension plan if your income is high. Defined benefit plans take some extra work, but can be great tax savers if the owners are over the age of 47 and most workers are younger.
Make sure you’re reviewing all of your personal expenses to see if they could become legitimate business deductions.
Here are four habits to pick up that will make you more money and help you pay less tax.
- Practice good record-keeping. You can control what you measure. If you don’t measure it, you can’t control it. You should be able to produce a fairly accurate financial statement within 30 days of month-end.
- Track your mileage. Without a doubt, this is the #1 most missed opportunity for business owners. You can use a smart phone app like milebug or simply take a picture of your odometer before and after business trips.
- Take your home office deduction. You need to track indirect expenses for the year and measure business use and total home use.
- Invest with fundamentals. This is especially true if you’re investing in real estate. The ideal is buying a real estate property that creates positive cash flow and creates a tax loss that you can deduct. You make your money on the buy, so make sure you’ve run through the financials with your USTaxAid CPA first.
As always, we’re here to help you. Right now, the best way we can help you prepare for less tax is with a tax consultation or through the coaching program.
Do it before year-end to make sure you get all the tax savings possible for you!