Top 5 Tax Planning Strategies Your CPA Wants You to Know

By lawfully lowering the amount of taxes due, a corporate tax plan seeks to maximise revenue. Your tax strategy must change with the times since government rules and tax laws are ever-changing. A tax strategist known as a Certified Public Accountant (CPA) assists entrepreneurs in determining tax deductions, allowances, and other ways to lower their tax obligations. The CPA may assist CEOs in making informed judgements by pointing out the tax implications of corporate actions.

CFOs and CPAs are not the same. Although CFOs may have experience as certified public accountants and give financial strategy for the entire organisation, not all CPAs are competent to serve as CFOs. You should consult with a tax-focused certified public accountant (CPA), such as Evans Sternau, for the greatest guidance and assistance with tax planning.

Maximize Retirement Contributions to Reduce Taxable Income

Anyone who makes enough money to fall into one of the three tax rates mentioned above is considered a high-income earner for tax reasons, according to the IRS.

Accordingly, you are regarded as a high-income earner for tax purposes if your taxable income exceeds $197,300 if you are a single person, married person filing separately, or the only head of the family, or $394,600 if you are a married person filing jointly.

In order to help people and company owners maximise their retirement contributions while minimising their taxable income, certified public accountants, or CPAs, are essential. This is how they go about it:

1. Choosing the Right Retirement Plan

To suggest the most tax-efficient retirement plans, certified public accountants look at your income level, company structure (if you work for yourself), and retirement objectives.

2. Maximizing Annual Contributions

CPAs make sure you make the annual maximum contributions permitted.

3. Reducing Taxable Income

Conventional retirement contributions reduce your adjusted gross income (AGI) since they are usually tax deductible.

4. Timing Contributions for Maximum Impact

To still credit for the prior year, CPAs recommend making donations before the year-end for calendar-year taxpayers or until the tax-filing deadline (such as April 15).

5. Coordination with Various Tax Strategies

CPAs can layer retirement contributions along with other strategies:

• High-earners’ backdoor Roth IRAs
• Harvesting tax losses in addition to deductible contributions
• Contributions to Health Savings Accounts (HSAs) for triple tax advantages

Leverage Strategic Deductions and Credits

Your tax burden can be decreased each year by making the most of your available tax credits and deductions. Finding the different possibilities that fit your unique situation and strategically using them to their fullest potential is the difficult part.

We can assist you in locating potential tax opportunities, such as credits and deductions, in collaboration with your tax expert.

Your tax burden can be decreased each year by making the most of your available tax credits and deductions. Finding the different possibilities that fit your unique situation and strategically using them to their fullest potential is the difficult part.

The following 11 tax credits and deductions are broken down by category:

• Tax credits vs. tax deductions
• Health care tax deductions
• Investing tax deductions
• Business tax deductions
• Other deductions
• Childcare tax credits
• Questions to discuss with us

Plan Investment Gains and Losses (Tax-Loss Harvesting)

Selling nonprofitable investments at a loss in order to offset or lower capital gains taxes paid on selling investments at a profit is known as “tax-loss harvesting.” Your total tax bill may go down as a result.

By balancing the amount that investors must declare as income or capital gains, tax-loss harvesting helps them lower their taxes. To put it another way, investments are “harvested” in order to be sold at a loss, and the proceeds from the sale are used to reduce or even eliminate the taxes you owe on profits you earn throughout the year.

Implement tax-loss harvesting in my business? 

1. Review your investment portfolio 

Determine whether assets are now held at a loss and give particular consideration to those that might not have much chance of recovering in the future.

2. Time your sales strategically 

You could wish to schedule losses to be harvested in the same year in order to reduce taxes if you anticipate having significant capital gains in that year.

3. Match gains and losses

Any capital gains should be compensated by your capital losses. For both short-term and long-term losses and benefits, balance them out. Long-term profits are subject to lower ordinary income tax rates than short-term gains, which are subject to higher rates.

4. Avoid the wash sale rule

You are not allowed to repurchase the same or a substantially identical stock or investment within 30 days prior to or following the sale due to the IRS’s “wash sale” regulation. Your tax deduction for loss is denied if this regulation is broken. Note: To guarantee adherence to this regulation, wash sales are reported to the IRS separately.

5. Track your losses

For every tax year, maintain thorough records of all transactions, including capital gains and losses. This guarantees that you may appropriately carry over any unused losses to subsequent years and collect all permitted deductions.

6. Work with a tax advisor

Although tax-loss harvesting can appear simple, it’s always a good idea to consult a tax expert or financial counsellor who can help you navigate the nuances of your company. They may assist you in figuring out the ideal time, how to optimise the advantages, and—above all—ensuring that tax laws are followed.

Choose the Right Business Structure

For every entrepreneur, choosing the appropriate business structure is crucial as it has a significant impact on your venture’s legal standing, tax obligations, operational flexibility, and development potential. This decision’s wide-ranging effects call for a careful analysis of the distinctive characteristics and implications of every company structure.

A summary of typical business structures is shown below:

Sole Proprietorship: One person owns and runs a sole proprietorship, the most basic and uncomplicated type of company structure. Profits and losses are immediately recorded on the owner’s personal tax return, which makes tax preparation comparatively easy. It is an extension of the owner’s financial and legal identity. Nevertheless, this ease of use has the disadvantage of unrestricted personal accountability for the debts and liabilities of the company.

Partnership: A partnership is created when two or more people or organisations decide to work together on a commercial venture, sharing the profits, losses, and duties. This group consists of:

• General Partnerships (GPs): where each partner has some responsibility for the business’s obligations and participates in its operations.
• Limited partnerships (LPs) consist of both general and limited partners. Limited partners usually contribute money but do not participate in management choices, thus their liability is restricted to the amount they invested.
• Although there are some differences between the two in terms of operational management and liability scope, limited liability partnerships (LLPs) and limited liability limited partnerships (LLLPs) both provide personal liability protection for the partners’ personal assets against the business’s obligations.

Limited Liability Company (LLC): An LLC is a versatile hybrid organisation that combines the tax advantages of a partnership with the personal liability protection of a corporation. Owners, or “members,” have a great deal of freedom in handling their tax obligations since they can choose to have the company taxed as a corporation or as a pass-through organisation.

S Corporation (S Corp): By permitting revenue, losses, and credits to flow through to owners’ individual tax returns, a S Corp is a unique category that prevents double taxation. It combines the tax benefits of a smaller organisation with the legal protection of a corporation. S Corps do, however, have stringent requirements for eligibility, such as restrictions on the kind and quantity of shareholders.

C Corporation (C Corp): A C corporation (C Corp) is a distinct legal entity that provides its owners (shareholders) with the highest level of liability protection; however, it comes at the expense of double taxation, as profits are taxed at the corporate level and dividends paid to shareholders are taxed once more on their individual tax returns.Businesses that have foreign owners or want to raise money through public stock offerings are ideally suited for this structure.

Optimize Timing of Income and Expenses

After considering the aforementioned concerns, the following tactics should be taken into consideration:

1. Defer income: Postpone sending out bills to customers or getting paid until the following fiscal year. This lowers your tax burden by lowering your taxable income for the current year.
2. Increase spending: Increase your deductible costs and lower your taxable income by making purchases or payments before the end of the fiscal year. Prepaying costs like loan interest, rent, subscriptions, training, or insurance in advance, buying the required equipment, or even just stocking up on consumables like stationery and staff amenities before the year ends are all examples of this.
3. Super payments and top-ups: To reduce your taxable income and benefit from any applicable tax deductions, make extra superannuation contributions before the end of the fiscal year. To guarantee that these payments are handled in time for tax purposes, we advise making them by June 15th.
4. Bonuses for directors: Additionally, you can lower your taxable income by paying director bonuses prior to the conclusion of the fiscal year.