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Golden Tax Relief’s Year-End Tax Planning Strategies for Businesses
As 2022 comes to a close, people begin closing their books and preparing for the year ahead, but many business owners neglect to take advantage of some amazing strategies to lower your tax liability for the current year. Golden Tax Relief is here to offer some tax planning strategies that may just make your New Year start with extra money in your coffers!
1. Put Your Children on Payroll – The IRS allows business owners to pay their children (18 years or younger) without the burden of paying Payroll Taxes or Income Taxes provided the pay received is no more than the standard deduction amount for the year. The standard deduction for 2022 is $12,950 for single filers. The IRS allows this primarily because they don’t think children will be likely to sue their parents and are typically covered by their parent’s health insurance. This means you can hire your children and pay them (no more than the standard deduction) without having to pay Social Security or Medicare. The caveat is that you have to be set up as an LLC or a Sole-Proprietorship to avoid having to issue W-2s. Speak to a Certified Tax Planner to learn some work-arounds if you own an S-Corp or C-Corp.
2. Stay Single – We do not have any problems with love and marriage, but there could be an advantage to waiting until the New Year if you both own houses. The IRS considers you married for the entire year if you are married on or before December 31st of the current year. If you both own your homes, waiting to get married until the New Year may increase your mortgage interest deduction!
3. Get Married – See? I told you we had no problems with love and marriage! For some people, there could be a great benefit to marrying before the end of the year. This is particularly true for high income earners. Because single people are taxed at a higher percentage than that of married people.
4. Get Divorced – Ok, now it may seem like we are contradicting ourselves but if love and marriage just aren’t working out and you are planning on getting divorced, it could behoove you to get it finalized before the year end. Like with marriage, the IRS considers a person divorced for the entire year provided they are divorced on or before December 31st. Changes to tax codes recently have made Alimony no longer a deductible and any Alimony received is tax free!
5. Make Use of the Zero Tax Bracket – This could be particularly useful for retired individuals that have income below the standard deduction. If your social security and any IRA distributions received in the year equal less than the deduction, it would be wise to take out more money from an IRA up to the deduction amount because that money would be tax free! The 0% tax bracket can also be used if you have long term capital gain distributions or qualified dividends. This can also be taxed at 0% provided your taxable income for the year was below $80,000.00.
6. Start a Family Management LLC. – There are many benefits to setting up a Family Management LLC. Some of these include asset protection, estate planning advantages and electing pass-through taxation. There is flexibility in management with Limited Liability Companies and you can decide how your LLC is run. A Family Management LLC. Can also allow certain expenses that an individual would normally incur the cost of to be reimbursed through the company and deducted as an expense. Examples of these expenses include phone bills, home, vacation home, timeshares, multiple vehicles and even some meals! Family Management LLC.s are subject to the same rules as all LLC.’s and should be run with consideration of these laws. A Certified Tax Planner can help implement and explain the nuances of the Family Management LLC. Structure as a beneficial tax strategy.
7. Timing Business Expenses – If you do business on the Cash Basis (as opposed to the Accrual Method) it may benefit you to make big-ticket purchases in the current year. If you need office equipment or business vehicles, purchasing prior to the end of the year could help lower your taxable income for that year. If you are expecting a greater tax liability the following year, you may want to push that purchase to the following year. Another tactic used to lower the current year’s liability is to pre-pay for expenses you know will be incurred in the following year. This can include insurance, medical procedures, interest payments, and property taxes. There is something called the 12-Month Rule that allows for the deductions, provided the right or benefit does not extend past 12 months of the prepayment. These decisions need to be considered based on your following year projections. If you expect to be in a lower tax bracket in the following year, this method is especially beneficial.
8. Set Up Corporate Credit – If you currently use personal credit for business expenses, year end is the perfect time to set up corporate credit. This protects you and your business should you ever be put under audit. It is very difficult to prove which expenses are legitimate business expenses when the expenditures are mixed with personal purchases. Use corporate credit for all business expenses. You can even have different accounts for different types of expenses. For example, if you travel extensively in your business, you can have all travel expenses on one credit account and all advertising expenses on a separate credit account. Again, this will be a Godsend should you ever find yourself in an audit.
9. Make Your Website ADA Compliant For a $5K Tax Credit – Tax credits are a great way to lower your tax liability. Unlike deductions, credits are a dollar-for-dollar reduction in taxes owed. This tax credit is available to any small business making less than 1 million dollars in revenue for the previous tax year or that has less than 30 full-time employees. By making your website more accessible through barrier removals and alterations, you can cover 50% of eligible access expenditures up to $5K. This can include format changes to include large print, audio tape, sign language interpreters, or purchasing adaptive equipment to assist those with disabilities.
10. Health Insurance – Year end is a great time to set up a Health Savings Account, Qualified Self Employed HRA (QSEHRA) plan, or an Individual Coverage HRA. If you plan on getting health coverage for yourself or your employees, there are many options to consider but if established correctly, you may be able to obtain a tax credit. This is definitely a win-win situation where providing insurance support can actually increase benefits for business owners.
These are but a few of many possible year-end strategies that can lower your overall tax liability and set you up for future benefits. Creating and implementing a tax plan for your business can be daunting but, we are here to help! You can start the New Year knowing you are protected and that your business will continue to grow with the help of an expertly-placed tax plan. Contact Golden Tax Relief, LLC. at 630-278-5023 and begin your journey to financial wellness.
