When we are putting the tax season that was just completed in the rearview mirror I like to review the insights and opportunities that I have gleaned from the process of preparing taxes for clients. In the the annual maze of 1099s and W-2s some key points can serve as helpful guidelines for planning financial goals in the months aheadas well as for tax reform.
WITHHOLDING
Making sure you are doing your the annual withholding correct is a largely ignored tax planning nitty-gritty. If you don’t withhold enough and pay taxes, you will be able to receive the tax bill that you may not have expected. If you exceed your withholding this is a tax-free credit towards IRS. Internal Revenue Service (IRS). While a substantial refund can bring a sense of satisfaction for a short time but adjusting your withholding will generate more funds throughout the calendar year giving more control and flexibility as you make financial plans.
MAKING THE MOST OUT OF REFUNDS
In the case of refunds, if you do get one, think of it as an opportunity to boost your savings over the long term and increase your investment opportunities. This could include the Roth IRA or Health Savings Account (HSA). You must make the payment prior to the due date, however you are able to do this when you file your tax return.
Also, you can file, get your refund and and then contribute the money. This is a method to make use of “found money” for your earlier-year contributions.
HSA FSA
Many times, people view HSAs the same way as Flexible Spending Accounts (FSAs) to pay for health care. This means that they deposit money in, but then take it out within the same calendar year to pay for healthcare expenses. Be aware that an HSA isn’t an “use it or lose it” pre-tax savings vehicle, as an FSA. Instead, it’s a longer-term savings instrument that has many benefits. Set up your HSA then put it into it, let it expand, and then use it in the future. You will be able to be grateful to for it.
Tips for the Pros:One way to keep track of their usage is to remember (or google-ing!) which “S” in the middle of each acronym represents. Spendthe money in the Flex Savings Account, while you conserve the money within the savings account. SavingsAccount.
DEPRECIATION ISN’T OPTIONAL
The most important lesson to take away of this tax season relates to owners of rental properties. In a nutshell: Depreciation of the rental property you own is not an option. Whatever way you decide to use it to rent out your property or not, you have to consider a part of the gain as depreciation allowed or allowedwhen you decide to sell the property.
In the absence of depreciation deduction for the property while you rent it, you don’t just do not get an exemption however, you’re at the mercy of an additional capital gain tax rate upon the sale. If you’ve fallen through the cracks There’s a way to get it back that is available, however it’s likely to require the assistance of a qualified tax professional to fix it.
MAX IT OUT
When it comes to retirement planning I can’t emphasize enough the importance of ensuring that employers fund retirement plans such as 401(k)s particularly for those with higher earnings years (hello Generation of X!). The tax efficient savings you can make today will not only provide a myriad of planning options to plan your retirement but can additionally increase your savings today by the efficacy of lowering your tax bill.
REVIEW PRIOR YEARS
One of my most memorable cases this tax year was the finding of a substantial prior-year tax-free passive loss that was retracted on the (three three) earlier return. If you hadn’t re-read the previous years’ returns, this lossas well as the resulting $20,000 in tax savingscould have been lost for ever. Be sure to carry forward any past-year losses that are not allowed because of rules on passive activity loss or similar.
ROTH CONVERSIONS
The benefits of Roth conversions was also evident this year, particularly in instances where income as well as the tax burden was anticipated to be modest. In a few instances, Roth conversions were literally tax-free, granting those dollars the status of not being taxed. The opportunity to earn that status is extremely rare and fleeting. Tax planning can help you ensure that you do not miss out on any opportunities.
BE A CONTROL FREAK
If you’re able control your earnings through distributions from specific accounts in your investment portfolio make use of this option efficiently. It’s a great way to help with everything from tax-related costs to health insurance premiums and more. This is the connection between tax planning and cash flow planning. It could completely alter your life and provide your retirement plan a huge boost.
PLANNING FOR THE FUTURE
In the upcoming 2023 tax reforms two important pieces of legislation offer significant and innovative tax planning options for 2023 and beyond.
1. The Inflation Reduction Act incentivized certain expenditure. It …
- Tax credits that are redesigned to encourage homes that are energy efficient,
- Refreshed credit for tax-free energy generation (think solar and wind) and
- Tax credits that have been adjusted and expanded for plug-in hybrids and electric vehicles.
2. The SECURE 2.0 Act presents some exciting retirement planning opportunities.
- If you’re turning age 72 in the coming year, you required Minimum Distribution (RMD) won’t begin until the next year …
- … But your capacity to make Qualified Charitable Distributions (QCDs) is not a thing.
- You may also transfer 529 Plan balances to Roth IRAs, but subject to certain restrictions and rules.
- The RMD excise tax that is commonly considered to be draconian was lowered and is now as low as 10% if you take the correct remediation measures.
- One of the biggest changes is that Roth contributions are now transferred to SEP or SIMPLE IRAs.
There’s a myriad of strategies and planning options to consider and implement when we are leaving the tax season behind to get ready for the following. If it’s getting the right withholding or making the most of an HSA and getting the most from the tax-efficiency of rental properties or taking advantage of new tax laws, the most important thing is to be vigilant and active in your tax planning for the year 2023.
Tax returns can be an obligatory formality, orin the case of going on your own the daunting annual chore. It’s also a time to look back at the past and make plans to plan for the next. If you have the right mindset and a good expert’s advice it can be a powerful tool to security and financial growth.
