Am I doing everything I should be doing to minimize my tax liability?
Here are 6 things you can be paying close attention to now in order to be in great shape for tax season.
1. Max out your retirement plan.
If you are a business owner, there are several options for setting up retirement so you can fund the right vehicle and get the tax advantage associated with it. There are even opportunities to fund in 2022 that will allow you to take the tax advantage on your 2021 return. For example, if you are self-employed without additional employees, a SEP IRA may be a viable retirement savings option. Even if it is set up and funded in 2022, you may be eligible to contribute a certain amount that will reduce your tax liability for 2021.
If you have questions, regardless of the plan (Simple, 401K, SEP), be sure and get with your accountant for how to maximize your contribution to minimize your tax liability.
2. Max out your HSA.
If you have an HSA plan, I recommend contributing the maximum allowed so that it reduces your total taxable income by that amount.
3. Contemplating a purchase?
While we don’t advocate making a purchase just for a tax write off, if you are considering buying a piece of equipment, there can be an advantage to buying it now to take the tax write off this year. Even if you finance equipment, you can take the entire purchase as a write off.
In case you are wondering, automobiles fall under a different set of rules which would be a topic to consult with your accountant about if you are considering buying a company vehicle.
4. Shift income.
Shifting income is a strategy for lowering a business owner’s tax liability by paying family members who in turn put those earnings into a retirement plan.
For example, if you wish to shift income to a spouse, you may pay them a salary, which becomes a business write off. The spouse can then take that salary and max out their 401K.
For kids, they can put that income into a Roth IRA where it grows tax free.
Income shifting between family members is done in cases where it makes sense to lower the tax liability and help set family members up for retirement.
5. Keep good and detailed expense and income records.
Whether it’s you or your accountant, staying up to date on your bookkeeping is important so that, together, we can track important detail. The better your records are, the clearer the picture is, and the more accurate our tax planning can be to help you maximize what you can do to minimize your tax liability.
6. Schedule your end of year tax planning meeting
As we close in on the end of 2021, if you haven’t scheduled your year-end tax planning meeting yet, we recommend making it a priority. Your CPA is your expert in helping you and your business navigate complex tax strategy to keep your tax liability as low as it can be.
You deserve the peace of mind that comes with moving into a new year with a plan and no tax time surprises.