If the taxman has you singing the New Year blues, here are some tips and strategies that will have you seeing green in 2022. For over 30 years, the professionals at CPA Berger First have been guiding their clients in ways that help maximize taxes savings while minimizing audit risk. Ravee Shrinivas, CPA, of Berger CPA First sat down with VUE to provide some of their top tax strategies for the New Year.
“Tax strategy constantly has to be reviewed,” says Shrinivas.”Oftentimes you’re not only dealing with the federal government, you’re dealing with three different jurisdictions with three different tax laws,” he explains, adding “the laws are always changing.” One great example of this is the Tax Cuts and Job Act (TCJA) which came into law in 2017. “The TCJA has completely changed the way that people are looking at flow-through businesses like S-corporations and sole proprietorships,” says Shrinivas. Maximizing tax savings starts with the right structure. The structure used depends on the type of business you have.
Employing strategies where you can defer some of your taxes for a long time, can provide savings that are substantial. A retirement plan is a perfect example. Maximizing 401k contributions reduces taxable income and defers taxes until retirement. Depending on your employer’s contribution match, this could also mean free money beyond savings from taxes.
It’s a Family Affair
Over 30% of businesses in America are small businesses, and there are amazing opportunities to leverage your family business for taxes. Filing jointly with a spouse may provide greater savings on Section 199A where up to 20% of qualified business income (QBI) may be deducted. Employing children in the family business can also have many benefits. For example, a child may be employed for bookkeeping and compensated to a salary threshold of $10,000-$12,000. That same salary could see exponential growth if it’s placed into a Roth IRA in the child’s name.
“Depreciation is a beautiful word,” says Shrinivas, “You can buy a piece of equipment and write it all off on day one.” A $100,000 piece of equipment can be purchased with a loan and you can write the whole $100,000 off, even if the down payment was only $20,000. These purchases are often planned throughout the year, but are typically made at the end of the year.
“Economics always trumps taxes,” says Shrinivas. “If a stock is up and down, you may choose to hold on for economic reasons.” However, he said, if you have a capital gain at the end of the year, it may be a perfect time to sell other investments that you’ve been looking to get rid of. If you have losses, you can sell these stocks and offset against a capital gain. Be careful to avoid a wash sale that occurs when a stock is bought, then sold at a loss, then bought back within a 30-day period. A wash sale can result in you being taxed for gains when, in fact, you sold at a loss. These are events that a tax advisor can help you address.
A Professional Plan
There are many deductions, tax credits and benefits available and a CPA can help you navigate the 70,000-page tax law to find what will maximize your tax benefits. Things to consider at the beginning of the year when planning your tax structure include how much income you expect, stock market investments, 401k contributions, and real estate sales or purchases. Make a checklist of all items and meet with your tax advisor to discuss how these will affect your tax plan. Shrinivas explained that it’s important to choose a tax advisor carefully. “There are people out there that are promoting shelters, but you need to find the taxes laws that make sense. Authorities look for supporting documents; keep pristine records,” he says. Shrinivas recommends at least a quarterly visit with a tax advisor and always check in before filing in order to avoid any last minute tax law changes. People work hard for what they have,” he says, “and you must work hard not to part with it.”
Structure – A successful tax strategy will vary among business models.
Defer Income – Putting off income tax can result in big savings.
It’s a Family Affair – A family business can provide many tax benefits.
Depreciation – Get big deductions from asset purchases.
Tax-Loss Harvesting – Offset capital gains by selling weak investments at a loss.
A Professional Plan – Find a professional tax advisor to help maximize your tax benefits.