Even without itemised deductions, very careful planning and recordkeeping can lead to substantial tax savings. And, advanced strategies may include tax-advantaged accounts such as retirement and Health Savings Accounts, as well as other above-the-line deductions you might be able to claim, such as charitable contributions or even mortgage interest payments.
Strategically planning income and expenses can improve tax outcomes.
Itemized Deductions
Itemized deductions are to reduce your taxes dollar for dollar with the amounts of expenses that reduce your taxable income. Such expenses include mortgage interest, charitable donations, state and local taxes, per law , such as property taxes, excise sales income taxes except for environment issues , generation skipping transfers ( Estate taxes ) ( only property severance charges and environmental costs). Mortgage interest is one of itemized deduction beside donations and state and local taxes that shown on property taxes, excise sales income taxes and environmental charges. Other for itemized deductions are donations, state and local taxes, property taxes, excise sales income taxes and environmental charges. The tax schedule dictates that you need to exceed certain thresholds to qualify to itemise. You need to spend more than 7.5 per cent of your adjusted gross income on medical and dental expenses, for example. Keeping good records can help you maximise the amount of itemised deductions you claim: segregating business from personal expenses, keeping receipts for things that you purchase, asking for sales slips from a cash register, and generally keeping accurate, detailed and thorough records. You also have to keep track of what accounting method you use to report your taxes – either cash or accrual accounting – as well as to choose to pay taxes on a calendar or fiscal year.
Tax-Advantaged Accounts
Tax breaks: some savings and investment accounts include tax breaks, which gives you an incentive to invest. IRAs, 529 accounts (for college savings) (HSA), HSAs and 401(k). Picking an account that is appropriate for the investment will also be the most tax-efficient. In general, investments with significant short-term capital gains would be better off in taxable accounts, while investments with significant dividends might get better treatment in tax-advantaged ones. Section 179 expensing can help your business lower its tax bill by allowing it to expense assets when purchased, rather than write them off after the year they were purchased – useful for small businesses with high equipment costs Wolters Kluwer makes managing IRAs, HSAs, CESAs and 401(k)s easier.
Strategic Investments
Investments play an important role in the growth of a small business. When making these investments, eyes need to be on the long-term goals. The equipment that is purchased possibly affords the business owner a portion of the purchase a year for the number of years they have stated in their depreciation schedule. The same can be said of the worker. Training and development of workers over time creates seasoned or experienced workers, which begets productivity and sales growth. Possible strategic small business investments include tax-deferred accounts that reduce taxable income such as SEP IRAs, Solo 401(k)s, HSAs, and education-related accounts that may have incentives specific to the needs and objectives of your business.
Timing Income and Expenses
For a small business, whether to time income and expenditures can have a large impact on tax liabilities. Choices involving whether and how to defer expenditures from one year to the next can reduce overall tax bills, and vice versa; managing such decisions in the context of a business’s cash-flow needs, making allowance for the current and (possibly) different future tax rates that such a business would face, can be nontrivial. Tax write-offs for depreciation of equipment or vehicles can be substantial if they are amortised across their useful lives; these benefits can be enhanced through accelerated depreciation. Keep detailed records of income, expenses and eligible deductions by using an accounting software solution to track it all. A certified accountant can help by identifying what’s eligible as a deduction to ensure you are on track to get back the maximum amount allowed by the IRS. Call (832) 786-2345 to book an in-person, virtual or phone appointment with us!
Voluntary Deductions
Voluntary deductions can include medical, dental and vision expenses; FSAs (flexible spending accounts); life and short-term disability premiums. In most cases, open enrolment and the changes these options bring to an employee’s taxable earnings and take-home pay are set to occur on an annual basis. As it is for donations to charitable causes, pre- or post-tax donations to non-profit organisations may be tax-deductible when filed as an individual tax return. Depending on the type of donation and the rules of financial administration by the employer, either pre- or post-tax donation may occur. Communication about these direct debits must be clear, with employees authorising such direct debits in writing, and every pay slip showing the amount withheld, alongside the cumulative total for the year to date, so that there can be no ambiguity or conflict about amounts paid. Any system that should handle these via digital or paper receipts – and a system for tracking this information needs to be in place.
