Year End Tax Planning

If you wait until 4/15 to save on taxes you’re doing it wrong!

You read that correctly, there’s a BIG difference between tax filing and tax planning. Today, I want to let you know about some options you have to save on taxes while you still can!

Tax filing, or tax preparation, is simply the filing of your tax return in accordance with federal and state laws. It’s how you tell the taxing jurisdictions how much money came in, what went out, and how much tax you owe. The tax year is closed and there’s almost nothing that can be done to lower your tax liability. A lot of people think they have to pick the right tax person to get the best refund. The truth is, the refund size is based on what tax you’ve paid minus what tax you owe. The tax you owe is already determined… because the year has CLOSED. The right tax person can make sure your tax due is calculated correctly but can’t really do anything to help you pay less tax.

I’m a bigger fan of tax planning.

The goal of tax planning is to maximize your tax savings. Said differently, tax planning involves using the tax code to pay the least amount in tax - legally. You’d meet with your CPA or tax planner who will evaluate your situation and give you advice that will lower your taxes owed in the future. This is considered “proactive” and needs to get done during the year, before it has come to a close.

Now that you know the difference between those two, let’s talk about some things you can still do to lower your 2023 tax bill!

Charitable contributions

If you make donations to qualified charities, whether cash or household items, you may be able to deduct all or some against your taxable income. This applies to both individuals and businesses. However, if you’re an individual, you must itemize your deductions in order to be able to use this one.

Contributions to retirement plans

If you are an individual, you can contribute to retirement plants such as a traditional 401k or traditional IRA and deduct the contributions against your income. The deductions for the IRA are subject to income limitations. For the 401k, this has to be something your employer offers - it’s not something you can setup on your own.

If you are a business owner, your business can setup a work place retirement plan! Depending on the type of business you have, the size of your business, and number of employees you have, if any. The business AND/OR the individual (you) may get a tax deduction of up to $66,000 for 2023 🤯. These retirement accounts include traditional & Roth IRA, individual or solo 401k, SIMPLE 401k, or a SIMPLE IRA. This can be an easy way to lower your tax bill in April while saving for your future. Right now ADP is offering 12 MONTHS FREE on 401ks, and 3 MONTHS FREE + WAIVED SET UP FEE for Simple IRAS for my followers. You can sign up here, you don’t see great deals like this very often so don’t miss out!!

Purchasing Equipment

If there’s any big purchases you’ve been considering making soon, right now could be a good time. Normally, when a business buys a big asset, like a truck for example, you aren’t able to write off the total amount you paid. Instead, you take some level of depreciation every year until the asset is fully depreciated. However, currently with bonus depreciation you may deduct up to 80% of the cost in the year of purchase. It used to be 100% up until 2022, now it’s at 80%, and next year it will fall to 60%. So, the longer you wait the less of a benefit you will see in the current year.

I want to emphasize the point about only making purchases that you’ve already been considering or actually need. Making big, unnecessary, purchases just to save on taxes is like exchanging a $100 for $30. Yes you kept some money away from Uncle Sam, but you also spent the money so you didn’t get to keep it either.

I hope this can help you save some money on your taxes this year. Sorry I’ve been MIA, the last few weeks were filled with cramming for my 4th, and hopefully final, CPA exam!! So hopefully, in the next few weeks, I can finally say I am a CPA! Happy Monday, I hope you have an amazing start to your week.

Until next time 🙂

-Neyra