Tax season is underway and if you’ve yet to file your taxes, you still have time. Whether you’re a business owner or working for a business, we all could use a little extra cash back when it comes to taxes. Tax reform eliminated many itemized deductions for most taxpayers, but there are still ways to save for the future and your your current tax bill.
Tax Saving Strategies for CEOs
Running a company can be very expensive— and taxing— to say the least. And the reality isn’t that much better for small business owners who get taxed an estimated average federal tax rate of 19.8%, according to Nationwide.
To this end, it’s important to see what actionable initiatives you can take with your team to curb the fiscal dent and maybe even earn some money back.
Begin Planning Retirement: Running a small business means you give up your 401(k) match that employees get when working for a company. This enables you, however, to consider various retirement account options like the one-participant 401(k) plan where the IRS lets you put in a maximum of $57,000 for retirement. Be sure to also talk to your small business accountant about 403(b) plans, Simplified Employee Pension plans or IRAs because these funds are tax-free until retirement and can be deducted from your taxable income.
Home Office Deductions: The new normal has changed our work setting. If you’re a business owner who is now using a home office, you can get a tax break or reduction on rent, utilities, and other home expenses. For example, if you’ve been using an old office chair, table, or laptop and have never claimed it as a business expense before, you might be eligible to deduct its current market value if you have proof of its original purchase
Two-Way Travel Expenses: As a business owner, you’re probably taking a lot of business trips visiting clients, suppliers, or scoping out new partnerships— and you might take some time for yourself then too. If so, you have the option to lower your vacation expenses when you deduct what you spent on business purposes like airline tickets, hotel bills, or more. Be sure to talk to your business accountant about the new 2022 rules.
Tax Saving Strategies for All Taxpayers
Perhaps, though, you are not a business owner; you are an employee, or a parent— you name it— who wants to save some money. Let’s check out your options:
Consider Charity: Sometimes, it really is “what goes around comes around.” The IRS seems to believe in good karma and allows for charitable donations made with payroll deductions, checks, cash, or items/clothes donations to be detectable. Thanks to the Coronavirus Aid, Relief, and Economic Security Act and the CARES Act, taxpayers who don’t itemize are allowed to deduct a maximum of $300 cash. Married taxpayers can take up to $600 “above the line” for the tax year 2021. Work with a professional to help you take full advantage!
Check Your State or Local Tax Breaks: Some of us can’t help but groan when we see how much state and local tax we pay— but there might be some ways to reduce it. Depending on your state, you can deduct the cost of medical expenses, or miscellaneous items— or at least have a lower bar on which they need to be claimed. So, be sure to research your local and state taxing rules to find what deductions are waiting for you.
Revisit Your 401(k): A big part of our taxes go to income tax but 401(k)s are an easy way to reduce your taxes. The IRS actually cannot tax the money you set aside for your 401(k) and if you’re 50 or older, you can put in an extra $6,500 in 2022. If your employer matches your sum, you can safely make more money.
Income Tax Credit Qualification: If you make less than $57,000, then you can look into the earned income tax credit. Talk to a professional about your circumstances— whether you are married, how many children you have, and what your total income is. If you qualify, you can get a dollar-for-dollar reduction in your tax bill and if your credit makes your bill below zero, the IRS can refund some or all of the money.
Use a Health Savings Account (HSA): Employees with a high-deductible health insurance plan can use a health savings account (HAS). As with a 401(k), HSA contributions (which may be matched by the employer) by payroll deduction are excluded from the employee’s taxable income; an individual’s direct contributions to an HSA are 100% tax-deductible from their income.
For 2021, the maximum deductible contribution level is $3,600 for an individual and $7,200 for a family. In 2022, those maximums rise to $3,650 for individuals and $7,300 for families.
Taxes can have all kinds of complex rules and fundamentals that leave small business owners or everyday citizens losing out on money they can actually keep.
If you want integral tips of the trade, expert advice, and renowned guidance for tax-saving strategies that are effective, consider working with the experts of Jeanine Hemingway, CPA. We are here to support you and pave the way for your financial success.