7 Year-End Tax Planning Tips for Individuals

As the holidays approach, it’s time to consider tax planning moves that will help lower your 2024 taxes, as well as set you up for tax savings in future years. Here are seven year-end tax planning ideas to consider.

1. Strategize on the Standard Deduction vs. Itemizing

This is a tried-and-true year-end tax planning strategy. If your total itemizable deductions for 2024 will be close to your standard deduction, consider making additional expenditures for itemized deduction items between now and year end to surpass your standard deduction. Those extra expenditures will allow you to itemize and reduce your 2024 federal income taxes. The 2024 standard deduction is $29,200 for married couples filing jointly, $21,900 for heads of household and $14,600 for singles and married couples filing separately.

Note: Slightly higher standard deductions are allowed to those who are 65 or older or blind.

The easiest itemizable expense to prepay is your mortgage payment due in January. Accelerating that payment into this year will give you 13 months’ worth of itemized home mortgage interest deductions in 2024. Contact the office to determine whether you’re affected by limits on mortgage interest deductions under current law.

Next, look at state and local income and property taxes that are due early next year. Prepaying those bills between now and year end might lower this year’s federal income tax liability, because your total itemized deductions will be that much higher. However, under current law, the amount you can deduct for all state and local taxes is limited to a maximum of $10,000 ($5,000 if you use married filing separate status).

Also keep in mind that prepaying state and local taxes can be unhelpful if you’ll owe the alternative minimum tax (AMT) for 2024. Under the AMT rules, no deductions are allowed for state and local taxes. So, prepaying these taxes before year end may do little or no tax-saving good for people who are subject to the AMT. While the Tax Cuts and Jobs Act (TCJA) eased the AMT rules so that most people are no longer at risk, take nothing for granted. Contact the office to check on possible exposure.

Other ways to increase your itemized deductions for 2024 include:

• Making bigger charitable donations to IRS-approved charities this year and smaller donations next year to compensate, and
• Accelerating elective medical procedures, dental work and expenditures for vision care if you think you can qualify for a medical expense deduction. You can claim an itemized deduction for medical expenses to the extent they exceed 7.5% of your adjusted gross income (AGI).

2. Manage Gains and Losses in Your Taxable Investment Accounts

The stock market has experienced plenty of ups and downs this year. You might have already collected some gains and suffered some losses. And you might have some unrecognized gains and losses from stock and mutual funds that you still hold.

If you hold investments in taxable brokerage firm accounts, consider the tax-saving advantage of selling appreciated securities that have been held for over 12 months. The federal income tax rate on net long-term capital gains recognized this year is 15% for most taxpayers, although it can reach the maximum 20% rate at high income levels.

An additional 3.8% net investment income tax (NIIT) can also kick in for higher-income taxpayers. So, the actual federal tax rate on long-term capital gains can be 18.8% (15% plus 3.8%), or 23.8% (20% plus 3.8%) at higher income levels. However, that’s significantly lower than the 40.8% maximum rate that can potentially apply to short-term capital gains (37% plus 3.8%).

If you’re holding some investments that are currently worth less than you paid for them, consider harvesting those capital losses between now and year end by selling those investments. Harvested losses can shelter capital gains from the sale of appreciated stocks this year. Sheltering short-term capital gains with harvested losses is an especially tax-smart move because net short-term gains are taxed at higher income tax rates that can reach 37%, plus another 3.8% if the NIIT applies.

If harvesting losing stocks would cause your 2024 capital losses to exceed your 2024 capital gains, the result would be a net capital loss for the year. The net capital loss can be used to shelter up to $3,000 of 2024 higher-taxed ordinary income ($1,500 if you’re married and file separately). Ordinary income can include salaries, bonuses, self-employment income, interest income and royalties. Any excess net capital loss is carried forward to next year — and beyond, if you don’t use it up next year.

In fact, having a capital loss carryover to next year and beyond could turn out to be beneficial. The carryover can be used to shelter future capital gains (both short-term and long-term) next year and beyond. That can give you extra investing flexibility in those years because you won’t have to hold appreciated securities for over a year to get a lower tax rate. You’ll pay 0% to the extent you can shelter gains with your loss carryover.

Important: If you sold a home earlier this year for a taxable gain, you may be able to offset some or all of that taxable gain with harvested capital losses from the sale of losing securities.

3. Donate Stock to Charity

If you itemize deductions and want to donate to IRS-approved public charities, you can combine your generosity with an overall revamping of your taxable investment portfolio of stock and/or mutual funds:

Underperforming stocks. Sell taxable investments that are worth less than they cost and claim the tax-saving capital loss. Then give the sales proceeds to a charity and deduct your donation.

Appreciated stocks. Donate directly to charity publicly traded securities that are currently worth more than they cost. As long as you’ve owned them for more than one year, you can claim a charitable deduction equal to the market value of the shares at the time of the gift. Plus, you escape any capital gains taxes you’d pay on those shares if you sold them.

4. Give Wisely to Loved Ones

The principles behind donating tax-smart gifts to charities also apply to making gifts to relatives and other loved ones. That is, don’t give underperforming taxable investments directly to your loved ones. Instead sell the stock or mutual fund shares and claim the tax-saving capital losses. Then give the cash proceeds to loved ones.

On the other hand, do give appreciated investments directly to loved ones in lower tax brackets. When they sell the shares, they’ll probably pay a lower tax rate than you would.

Before making gifts, however, be sure to consider any gift tax consequences. Also, if any potential recipients are children or young adults, check whether they’d be subject to the “kiddie tax.”

5. Make Charitable Donations from Your IRA

In 2024, IRA owners and beneficiaries who’ve reached age 70½ are permitted to make cash donations totaling up to $105,000 to IRS-approved public charities directly out of their IRAs. The SECURE 2.0 Act now allows eligible taxpayers to also make a one-time QCD of up to a limit that’s annually indexed for inflation ($53,000 for 2025) through a charitable gift annuity or charitable remainder trust. Additional rules apply to such QCDs.

You don’t owe income tax on these qualified charitable distributions (QCDs), but you also don’t receive an itemized charitable contribution deduction. The upside is that the tax-free treatment of QCDs means you can enjoy a tax benefit even if you don’t itemize deductions or if your charitable deduction would be reduced because of AGI-based limits. Also, QCDs can count toward your required minimum distribution, if applicable.

If you’re interested in taking advantage of this strategy for 2024, you’ll need to arrange with your IRA trustee or custodian for money to be paid out to one or more qualifying charities before year end.

6. Prepay College Bills

If you paid higher education expenses for yourself, your spouse or a dependent, you may qualify for one of the following tax credits:

The American Opportunity credit. This credit equals 100% of the first $2,000 of qualified postsecondary education expenses, plus 25% of the next $2,000, for the first four years of postsecondary education in pursuit of a degree or recognized credential. So, the maximum annual credit is $2,500 per qualified student per year.

The Lifetime Learning credit. This credit equals 20% of up to $10,000 of qualified education expenses. The maximum credit is $2,000 per tax return.

For 2024, both higher education credits are phased out if your modified AGI (MAGI) is between:

• $80,000 and $90,000 for unmarried taxpayers, or
• $160,000 and $180,000 for married couples filing jointly.

Numerous rules and restrictions apply. If you’re eligible for either credit and your expenses don’t already exceed the applicable limit, consider prepaying college tuition bills that aren’t due until early 2025. Specifically, you can claim a 2024 credit based on prepaying tuition for academic periods that begin in January through March of next year.

If your credit will be partially or fully phased out because of your MAGI, consider whether there’s anything you could do to reduce your MAGI so you could maximize your 2024 education credit. (Reducing your MAGI could also increase the benefit of certain other tax breaks.) If that’s not possible and your child is the student, see if he or she might qualify to claim the credit.

7. Convert a Traditional IRA into a Roth IRA

If you anticipate being in a higher tax bracket during retirement than you are now and have a traditional IRA, consider a Roth conversion. The downside is that there’s a current tax cost for converting. That’s because a conversion is treated as a taxable liquidation of your traditional IRA followed by a nondeductible contribution to the new Roth account.

While the current tax cost from a Roth conversion is unwelcome, it could turn out to be a relatively small price to pay to hedge against higher future tax rates. If you delay converting your account until a future year and you end up being subject to a higher tax rate — whether because tax rates increase or you move into a higher tax bracket — the tax cost will be larger.

After the Roth conversion, all qualified withdrawals from the account will be federal-income-tax-free. In general, qualified withdrawals are those taken after:

• You’ve had at least one Roth account open for more than five years, and
• You’ve reached age 59½, become disabled or died (i.e., distributions made to a beneficiary).

A Roth conversion makes it possible to avoid potentially higher future tax rates, because you’ve already paid the tax.

For More Ideas

Federal tax law may be uncertain for the next year or so because many of the TCJA provisions are scheduled to expire at the end of 2025 but could be extended. There also could be other tax law changes as a result of the election. Contact the office to discuss these and other federal (and state) tax planning moves that may apply to your current situation.

Tax-Saving Moves Businesses Should Consider Before Year End

Now is a good time to consider year-end moves that can help reduce your business’s 2024 taxes. The effectiveness of a particular action depends on the circumstances of your business. Here are several possibilities.

Time Income and Deductions

A tried-and-true tactic for minimizing your tax bill is to defer income to next year and accelerate deductible expenses into this year. For example, if your business uses the cash method of accounting, consider deferring income by postponing invoices until late in the year or accelerating deductions by paying certain expenses before year end.

If your business uses the accrual method of accounting, you have less flexibility to control the timing of income and expenses, but there are still some things you can do. For example, you may be able to deduct year-end bonuses accrued this year even if they aren’t paid until next year (if they’re paid by March 15, 2025).

Accrual-basis businesses may also be able to defer income from certain advance payments (such as licensing fees, subscriptions, membership dues, and payments under guaranty or warranty contracts) until next year. These payments may be deferred to the extent they’re recorded as deferred revenue on an “applicable financial statement” of the business, for example, an audited financial statement or a financial statement filed with the Securities and Exchange Commission.

Deferring income and accelerating deductions isn’t right for every business. In some cases, it may be advantageous to do the opposite, that is, to accelerate income and defer deductions. This may be the case if, for example, you believe your business will be in a higher tax bracket next year.

Buy Equipment and Other Fixed Assets

One of the most effective ways to generate tax deductions is to buy equipment, machinery and other fixed assets and place them in service by Dec. 31. Ordinarily these assets are capitalized and depreciated over several years, but there are a few options for deducting some or all of these expenses immediately, including:

Section 179 expensing. This break allows you to deduct up to $1.22 million in expenses for qualifying tangible property and certain computer software placed in service in 2024. It’s phased out on a dollar-for-dollar basis to the extent Sec. 179 expenditures exceed $3.05 million for 2024.

Bonus depreciation. This year, you can deduct up to 60% of the cost of eligible tangible property, which includes most equipment and machinery, as well as off-the-shelf computer software and certain improvements to nonresidential building interiors. Now’s the time to take advantage of bonus depreciation, since the deduction limit is scheduled to drop to 40% next year and 20% in 2026 and to be eliminated after that, unless Congress passes new legislation.

De minimis safe harbor. This provision allows you to expense certain low-cost items used in your business, even if they’d ordinarily be treated as fixed assets that are capitalized and depreciated. If your business has applicable financial statements, you can deduct up to $5,000 per purchase or invoice for these items to the extent that you deduct them for accounting purposes. If you don’t have applicable financial statements, then the limit is $2,500.

Despite the term “de minimis,” the safe harbor makes it possible to immediately deduct a significant amount of property. For example, if you buy 10 computers for your business for $2,500 each, you can deduct as much as $25,000 up front.

Each of these options has advantages and disadvantages and is subject to various rules and limitations. Contact the office for help choosing the most effective strategies for your business.

Fund a Retirement Plan

If you don’t have a retirement plan, establishing one can be a great way to generate tax benefits. It can also improve employee recruitment and retention efforts. Certain employers are entitled to tax credits for starting a new plan.

Whether you start a new plan now or already had one in place, depending on the type of plan, you may be able to take 2024 deductions for contributions you make after year end. Some plans, including simplified employee pensions (SEPs), can be adopted and funded after year end and still create deductions for this year.

Be Prepared to Write Off Bad Debts

Year end is a good time to review your receivables and determine whether any business debts have become worthless or uncollectible. If they have, you may be able to reduce 2024 taxes by claiming a bad debt deduction.

To qualify for the deduction, you’ll need documentation or other evidence that the debt is bona fide. You’ll also need evidence that there’s no reasonable expectation of payment (such as the debtor’s insolvency or bankruptcy) or documentation that you’ve taken reasonable steps to collect the debt. You should also have documentation that the debt was charged off this year, which is required for partially worthless debts and a best practice for totally worthless debts.

Finally, to deduct a bad debt you must have previously included the receivable in your taxable income. Thus, an accrual-basis business can deduct an otherwise eligible bad debt if it’s already accrued the receivable, but a cash-basis business can’t.

Find the Optimal Combination

Whichever year-end tax strategies you explore, it’s critical to understand how they interact with other provisions of the tax code. For example, if you have a pass-through business, claiming significant amounts of bonus depreciation can reduce your Section 199A deduction for qualified business income (QBI). That’s because first-year depreciation deductions reduce your taxable income and your QBI. Contact the office for help selecting the optimal combination of year-end planning strategies for your business.

Want to Find Out What IRS Auditors Know About Your Industry?

To prepare for a business audit, an IRS examiner generally researches the specific industry and issues on the taxpayer’s return. Examiners may use IRS Audit Techniques Guides (ATGs). A little-known secret is that these guides are available to the public on the IRS website. In other words, your business can use the same guides to gain insight into what the IRS is looking for in terms of compliance with tax laws and regulations.

Many ATGs target specific industries or businesses, such as construction, aerospace, art galleries, architecture and veterinary medicine. Others address issues that frequently arise in audits, such as executive compensation, passive activity losses and capitalization of tangible property.

Unique Issues

IRS auditors examine different types of businesses, as well as individual taxpayers and tax-exempt organizations. Each type of return might have unique industry issues, business practices and terminology. Before meeting with taxpayers and their advisors, auditors do their homework to understand the industry and its typical issues, the accounting methods commonly used, how income is received, and areas where taxpayers might not be in compliance.

By using a specific ATG, an auditor may be able to reconcile discrepancies when reported income or expenses aren’t consistent with what’s typical for the industry. The auditor also might identify anomalies within the geographic area in which the business is located.

Although ATGs were created to help IRS examiners uncover common methods of hiding income and inflating deductions, they also can help businesses ensure they aren’t engaging in practices that could raise audit red flags.

Updates and Revisions

Some guides were written several years ago and others are relatively new. There isn’t a guide for every industry. Here are some of the guides that have been revised or added recently:

• Child Care Provider (January 2022),
• Construction Industry (April 2021),
• Entertainment (March 2023) and,
• Equity (Stock)-Based Compensation (June 2024).

For a complete list of ATGs, visit the IRS website here: http://www.irs.gov/businesses/small-businesses-self-employed/audit-techniques-guides-atgs

Seniors: A Tax-Wise Alternative to Selling Your Appreciated Home

In recent years, the residential real estate market has surged in many areas. That means many homes have greatly appreciated, and the $250,000 home sale gain exclusion ($500,000 for joint filers) isn’t always sufficient to protect a home sale from federal income taxes. If you’re a senior thinking about selling your highly appreciated home, the transaction may bring a painful tax bill. One alternative to consider is aging in place.

If you remain in your home until your death, the tax basis generally will be adjusted to your home’s fair market value as of your date of death. When your heirs sell the home, they’ll owe federal capital gains tax only on appreciation that occurs after this date. The rules are a little more complicated for married couples, but ample tax savings can still be reaped from aging in place.

Tax planning usually calls for action. But this is one situation where it might make sense to hang tight. Contact the office to determine if this strategy is right for you and your family.

Use It or Lose It: Your 2024 Gift Tax Annual Exclusion

As the year winds down, you may want to combine estate planning with tax savings by taking advantage of the gift tax annual exclusion. It allows you to give cash or property up to a specified amount to an unlimited number of family members and friends each year without gift tax implications.

That specified amount is subject to annual inflation adjustments. For 2024, the amount per recipient is $18,000. Notably, in 2025, this amount will increase to $19,000 per recipient. Why is this significant? The amount was stagnant at $15,000 for several years (2018 to 2021). Beginning in 2022, the amount has increased by $1,000 annually due to inflation.

Each year you need to use your annual exclusion by December 31. The exclusion doesn’t carry over from year to year. For example, if you don’t make an annual exclusion gift to your granddaughter this year, you can’t add the $18,000 unused 2024 exclusion to next year’s $19,000 exclusion to make a $37,000 tax-free gift to her next year. Contact the office with any questions.

Recovering Lost Documents and Receiving Tax Relief After a Natural Disaster

It’s common for individual and business taxpayers to lose financial records during a natural disaster. Unfortunately, you usually need such records to document losses for your insurance company and to qualify for federal assistance. But if you visit the IRS website (http://www.irs.gov/individuals/get-transcript), you can view or obtain copies of your historical tax returns, wage and income statements, and other tax account information.

Requesting online access to your records is the fastest method, but even physical transcripts can be expected to arrive in the mail within 10 calendar days. Call your bank, credit card issuers and other financial service providers for copies of other needed documents.

If you were the victim of a natural disaster this year, you also may be eligible for filing extensions and other tax relief. Visit the IRS website for more information: http://www.irs.gov/newsroom/tax-relief-in-disaster-situations

Give Your Finances a Quick Once-Over with QuickBooks Online

How does QuickBooks Online fit into your normal workday? Do you log in only when you have to send an invoice or record a payment, for example? Do you save up work and visit the site only when you have a pile of paperwork to enter? Or are you busy enough that you need to check in daily to see what’s come in and what you need to do?

How often you should access your financial information depends on a variety of factors, such as the volume your business does. But there are certain things you should consider doing when you’re in there, whether because you have work to process or just for a daily check-in. You can learn a lot by targeting the areas of QuickBooks Online that will tell you quickly if there’s trouble brewing.

Here’s what you might want to do in these sessions. Following these steps can be especially helpful if you’re new to QuickBooks Online and don’t have a good grasp of its features yet.

Check Your Bank Connections

Click Transactions in the toolbar, then Bank transactions. Look in the boxes at the top of the page. If there’s a small red circled “i” in any of them, click it, then click Reconnect account in the window that opens. Click the pencil icon if you need to edit your account information. If the transactions look old, click Update in the upper right to refresh the account.

Categorize Your Transactions

This will be less of an onerous task if you do it regularly. Open an account by clicking in the box and make sure For review is highlighted. Open each transaction by clicking it and change the Category if it’s missing or not correct. Once you’ve verified everything in the box, click Confirm.

Check Your Dashboard

• Click Dashboard in the toolbar, then Home to see what might be on your list of outstanding tasks, like Pay 1 overdue bill.
• Go to the Bank Accounts pane on the left and look at your balances to see if anything looks amiss. Click on any to see their underlying registers.
• Look at the Expenses chart. QuickBooks Online will tell you how your current expenses compare to those incurred in previous periods. Click the down arrow in the upper right corner to change the date range.
• Click the Planner tab at the top of the page and make sure Money in/out is highlighted. Change the date range to 3 months by clicking the down arrow below Today’s cash balance so you can see where you fall for the current period.

Look at the Status of Sales

Click Sales in the toolbar, then All sales. Pay special attention to the Estimates, Unbilled income and Overdue invoices numbers. If you see an area that needs work, click on the corresponding colored bar to see a list of related transactions below. Look at the end of each row to see what your options are in the Action column.

Process Bills

Do you have bills that have come in the mail sitting there, waiting to be entered and paid? Click Expenses in the toolbar, then Bills. Click Add bill in the upper right and complete the form that opens. If the bill occurs on a regular basis, you can create a recurring bill. You can also upload scanned images of bills and attach them to the QuickBooks Online forms you create.

Click the Unpaid tab on the Bills page and look at the Status column to see if any are due soon (or overdue). You can mark them as paid here if you’re settling your debts manually, or you can pay them electronically through QuickBooks Bill Pay. Contact the office for help.

See How Your Budget Is Doing

If you have a budget set up in QuickBooks Online, click Budgets in the toolbar. Find your current one and click Run Budgets vs. Actuals report in the Action column.

Check Inventory Levels

If you carry inventory, you need to keep an eye on your stock status. Hover your mouse over Sales in the toolbar and click Products & services.

If you’re low on stock or completely out, you’ll see that information at the top of the page. You’ll also see a list of your inventory items and their Qty (Quantity) on Hand and Reorder Point, so you can look ahead and catch impending shortages.

Stay Aware of Your Financials

Of course, if you find work that needs to be done as you go through these steps, that will add time to your QuickBooks Online session. If you follow this path through the site a few times a week (or daily if your company is very active) it will give you more confidence in the financial health of your company and help you head off problems early. There are, of course, many other things you could do. This is the bare minimum. As always, contact the office if you need help, especially if you’re new to QuickBooks Online.

Upcoming Tax Due Dates

November 15

Employers: Deposit Social Security, Medicare and withheld income taxes for October if the monthly deposit rule applies.

Employers: Deposit nonpayroll withheld income tax for October if the monthly deposit rule applies.

Calendar-year exempt organizations: File a 2023 information return (Form 990, Form 990-EZ or Form 990-PF) if a six-month extension was filed. Pay any tax, interest and penalties due.

December 10

Individuals: Report November tip income of $20 or more to employers (Form 4070).

Understanding Tax Liens and How to Resolve Them

If you owe back taxes, a tax lien can be one of the most stressful financial situations to face. A tax lien is the government’s legal claim against your property when you fail to pay your tax debt, impacting your ability to refinance, sell property, or even secure new credit. Understanding the consequences of a tax lien and how to resolve it can help you regain control of your finances and avoid further complications.

What a Tax Lien Means for Your Finances

A tax lien does not immediately mean your property will be seized, but it does have serious consequences. Once a tax lien is filed, it becomes public record, which can lower your credit score and make it difficult to get loans, new credit lines, or even a rental property. The lien secures the government’s interest in all your assets, including real estate, vehicles, and personal property, and may prevent you from selling or refinancing them without addressing the lien first. In extreme cases, unpaid tax liens can lead to wage garnishment, asset seizure, or even foreclosure, depending on the state and the amount owed.

Options to Resolve a Tax Lien

The most straightforward way to resolve a tax lien is by paying off the debt in full. Once the tax debt is cleared, the IRS or state taxing authority will release the lien, typically within 30 days. However, not everyone has the ability to pay off a large tax debt immediately. In such cases, a payment plan, or installment agreement, can be a viable option. Under an installment plan, you can make regular payments over time, which may even result in a partial lien release if certain conditions are met.

Requesting a Lien Withdrawal

If you qualify, you can also apply for a lien withdrawal, which removes the lien from public records. This doesn’t eliminate the debt, but it helps protect your credit score by making the lien less visible. To qualify for a lien withdrawal, you typically need to enter into a direct debit installment agreement with the IRS and meet specific criteria. This option can help restore your credit while you continue paying down your tax debt.

Considering an Offer in Compromise

If paying off the full tax debt is not feasible, you may be eligible for an Offer in Compromise (OIC), which allows you to settle your tax debt for less than the full amount owed. To qualify, you must demonstrate financial hardship or an inability to pay the full debt amount within a reasonable time. The IRS considers your income, expenses, assets, and overall ability to pay when evaluating your eligibility for an OIC. Due to the complexity of qualifying, working with a tax professional can increase your chances of approval.

Avoiding Future Liens

After resolving a tax lien, it’s essential to stay on top of future tax obligations to avoid recurrence. This includes filing all future tax returns on time, making timely payments, and managing any potential estimated tax payments if you’re self-employed or have variable income. Consulting a tax advisor to help you manage these responsibilities can prevent future issues and keep your finances on track.

Moving Forward Without the Weight of a Tax Lien

Dealing with a tax lien can be overwhelming, but resolving it is possible with the right approach. Whether you’re paying off the debt, setting up a payment plan, or applying for a compromise, each step can help you regain financial stability. By addressing the lien proactively and taking steps to prevent future issues, you can move forward without the burden of unresolved tax debt holding you back.

The post Understanding Tax Liens and How to Resolve Them first appeared on www.financialhotspot.com.

Year-End Tasks for Business Tax Planning

As the year winds down, business tax planning becomes essential to prepare for tax season and ensure your business finances are in top shape. Tackling year-end tax planning tasks can help reduce your tax liability, avoid penalties, and set your business up for success in the coming year. This guide covers the essential steps you should consider for effective year-end tax planning.

Review Your Financial Statements

Start by thoroughly reviewing your financial statements, including your income statement, balance sheet, and cash flow statement. These documents give you a clear view of your company’s profitability and financial health over the year. Understanding where your income and expenses stand allows you to identify any areas for potential adjustments that may impact your taxes, such as end-of-year purchases or investments that could maximize deductions.

By analyzing these statements, you can better gauge where you may be able to reduce taxable income. For instance, if you’ve had an exceptionally profitable year, consider making charitable contributions, accelerating some expenses, or making larger investments before year-end.

Maximize Deductions and Credits

Year-end is an excellent time to assess all available tax deductions and credits to ensure your business is benefiting from each one. Common deductions include business-related travel, advertising, equipment purchases, and professional fees. Certain credits, like the Small Business Health Care Tax Credit or the Work Opportunity Tax Credit, can reduce your overall tax liability.

Section 179, for example, allows you to deduct the cost of qualifying property purchased during the year, like equipment or certain software, rather than depreciating it over multiple years. Taking advantage of these deductions by making necessary purchases before year-end can help reduce your taxable income. Working closely with a tax professional can also help identify credits and deductions specific to your business and industry.

Conduct an Inventory Check

If your business carries inventory, year-end is the ideal time to conduct a thorough inventory check. Write off any obsolete, damaged, or unsellable items, as these can impact your taxable income. Lowering your inventory levels reduces your taxable income by adjusting your cost of goods sold (COGS). Additionally, accurate inventory records can help you prepare for next year’s purchasing needs, manage cash flow, and avoid unnecessary storage costs.

Evaluate Retirement Contributions

Making contributions to retirement plans is another powerful strategy for reducing taxable income while investing in your and your employees’ future. Contributions to employer-sponsored retirement plans, like a 401(k) or SEP IRA, are tax-deductible, meaning they reduce your taxable income for the year. Additionally, contributing to retirement accounts can be a valuable incentive for employee retention and recruitment.

If you’re self-employed, setting up a solo 401(k) or SEP IRA before year-end can offer significant tax benefits, as contributions can be substantial depending on your income and the type of plan. Discussing options with a tax advisor will help you decide which retirement contributions best meet your goals and financial capacity.

Make Estimated Tax Payments

If you owe quarterly estimated taxes, make sure your year-end payment is accurate to avoid penalties. Estimated taxes are essential for businesses that don’t withhold taxes from employees’ paychecks, and accurate payments help prevent unexpected tax bills in April. Reviewing your income and estimated tax payments before the year ends can help you make any necessary adjustments and avoid underpayment penalties.

Organize and Document Business Expenses

Organizing and properly documenting your expenses is vital for accurate tax reporting and preventing potential audits. Ensure that all receipts, invoices, and records are properly categorized and filed. Expenses like home office deductions, mileage, and travel costs should be accurately tracked, as they can have a significant impact on your overall deductions.

Using accounting software or hiring a bookkeeper can simplify this process and help you categorize expenses accurately. Additionally, detailed documentation makes tax filing smoother and strengthens your records in case of an audit. This organization will also help streamline financial planning for the next year.

Setting Your Business Up for Success in the New Year

Completing year-end tax planning tasks not only minimizes your tax liability but also gives you a comprehensive view of your company’s financial health. By proactively managing deductions, reviewing your finances, and making strategic contributions, you position your business for financial success and stability. With careful planning, you’ll be better prepared to face the new year with confidence and clarity.

The post Year-End Tasks for Business Tax Planning first appeared on www.financialhotspot.com.

Common Reasons for Business Restructuring

Business restructuring is a strategic move companies make to improve efficiency, cut costs, or adapt to changing markets. While restructuring can seem daunting, it’s often essential to keep a business agile and competitive. Understanding the most common reasons for business restructuring can help you recognize when this strategy may be necessary for your company’s success and longevity.

Financial Challenges

Financial strain is one of the primary reasons businesses consider restructuring. If revenue is down, costs are too high, or profit margins have narrowed, restructuring can help realign expenses with income and keep the business afloat. Restructuring in response to financial difficulties might involve consolidating or cutting certain operations, renegotiating debts, or selling non-essential assets. These actions can help a company regain financial stability and improve cash flow, ensuring it can continue to operate while working toward a more sustainable business model.

Adapting to Market Changes

Markets and industries are constantly evolving, and companies must adapt to stay relevant. Shifts in consumer behavior, the rise of new competitors, and advancements in technology can all make restructuring necessary. For example, as e-commerce continues to expand, traditional retail businesses may restructure to reduce brick-and-mortar locations and focus on online sales channels. Similarly, a manufacturing business might restructure to incorporate automation and cut labor costs in response to industry trends. By restructuring to meet market demands, businesses can remain competitive and take advantage of new opportunities.

Preparing for a Merger or Acquisition

When preparing for a merger or acquisition, companies often need to restructure to align more closely with their potential partner’s operations, culture, or strategy. Restructuring during a merger can involve streamlining departments, adjusting management roles, or even changing the company’s legal structure. This alignment can make the merger process smoother, help integrate the two companies more effectively, and create a unified business model for future growth. In some cases, a company may also restructure to become a more attractive acquisition target by eliminating redundancies or enhancing certain operations.

Improving Operational Efficiency

Improving operational efficiency is a key reason for restructuring, especially as a business grows and its processes become more complex. Over time, organizations may accumulate redundant processes, layers of management, or outdated practices that slow down decision-making and productivity. By restructuring to eliminate bottlenecks or optimize workflows, a business can improve its overall efficiency and reduce operational costs. Streamlining roles, outsourcing non-core activities, and using technology to automate tasks can all contribute to a leaner, more efficient organization.

Responding to Leadership Changes

A change in leadership, whether it’s a new CEO or an executive team overhaul, often leads to business restructuring. New leaders may bring fresh perspectives and strategic visions that require restructuring to align with their goals. This might include reorganizing departments, adjusting management levels, or reallocating resources to support new objectives. Leadership-driven restructuring helps implement a clear strategic direction and can reinvigorate a business, making it more resilient and forward-focused.

Addressing Legal or Regulatory Requirements

Legal and regulatory changes can also necessitate business restructuring. Compliance with new laws, tax regulations, or industry standards may require changes to the company’s structure or processes. For example, new environmental regulations might lead a manufacturing company to restructure its operations to meet sustainability requirements. Similarly, a business may need to restructure its financial reporting practices to comply with updated tax codes or industry standards. Restructuring in response to regulatory requirements ensures that a business avoids legal penalties and maintains a positive reputation.

Building a Stronger Foundation for Growth

Business restructuring can be a proactive measure to build a more resilient organization that’s better positioned for future growth. Addressing financial concerns, improving efficiency, and adapting to changes allow companies to remain competitive in dynamic markets. By recognizing the need for restructuring, you can take steps that strengthen your business and set it up for sustainable success.

The post Common Reasons for Business Restructuring first appeared on www.financialhotspot.com.

Steps to Take When Managing a Loved One’s Estate

When a loved one passes away, managing their estate can feel overwhelming, especially when emotions are high. The responsibilities include sorting through finances, legal documents, and personal belongings, all while navigating the probate process. Here’s a guide to help you through the key steps of managing an estate and ensuring everything is handled correctly and respectfully.

Secure Death Certificates and Notify Relevant Parties

The first step is obtaining multiple copies of the death certificate from the funeral home or local government office. You’ll need these to notify banks, creditors, government agencies, and insurance companies of your loved one’s passing. Make a list of all parties you need to inform, including employers, utilities, credit card companies, and the Social Security Administration, if applicable.

Notifying these parties early helps prevent identity theft and unauthorized access to the estate’s accounts, making it an essential step in managing the estate responsibly.

Locate and Review Estate Documents

Once you’ve informed the necessary parties, locate and review any estate planning documents, such as the will, trust agreements, or any directives your loved one left. This step helps you understand how to distribute assets according to their wishes. The will is usually stored in a secure location like a safe, safety deposit box, or a filing cabinet.

If you cannot locate a will, the estate will follow state intestacy laws, which dictate how assets are distributed when someone passes without a will. Reviewing estate documents carefully will also give you a clear picture of the assets and liabilities involved, helping you plan the next steps.

File the Will in Probate Court

If there is a will, your next step is to file it with the local probate court. This is usually required within a specific time frame after the death, and the court will authenticate the will, officially opening the probate process. If you are named as executor, the court will formally recognize you as the estate’s legal representative, giving you the authority to manage assets, pay debts, and distribute property as outlined in the will.

During probate, you’ll work with the court to fulfill your duties as executor. While probate can take time, keeping detailed records and cooperating with the court helps streamline the process and minimize delays.

Take Inventory of Assets and Debts

As executor, it’s your responsibility to create a comprehensive inventory of all assets and debts. Assets may include real estate, personal belongings, bank accounts, investments, and valuables, while debts might involve mortgages, loans, and credit card balances. Knowing what the estate owns and owes is essential for distributing assets correctly and fairly.

Consult professionals like accountants or appraisers if you need help valuing specific assets. Additionally, gathering this information will help you identify what must be sold, paid off, or distributed.

Settle Debts and Pay Taxes

Before distributing assets, settle any outstanding debts and taxes, including income and estate taxes if applicable. Creditors must be notified during the probate process and given time to make claims. Using estate funds, pay valid debts first to avoid legal complications. Taxes may include the final income tax return for the deceased and any estate taxes, which are time-sensitive.

Settling these financial obligations before distributing assets protects you from future liability, as failing to pay creditors or taxes could make you personally responsible.

Distribute Remaining Assets

After debts and taxes are settled, distribute the remaining assets as directed in the will or by state law if there isn’t one. Distributions may be made directly to beneficiaries or placed in trusts, depending on the estate plan. Follow the probate court’s guidelines, keep records, and communicate with beneficiaries to maintain transparency.

Wrapping Up the Estate Management Process

Managing a loved one’s estate is a challenging responsibility that requires organization, patience, and attention to detail. By following each step carefully, from notifying necessary parties to settling debts and distributing assets, you can fulfill your role as executor respectfully and efficiently. Taking these steps allows you to honor your loved one’s wishes while providing closure for yourself and your family.

The post Steps to Take When Managing a Loved One’s Estate first appeared on www.financialhotspot.com.

Copyright © 2024   All materials contained in this document are protected by U.S. and international copyright laws. All other trade names, trademarks, registered trademarks and service marks are the property of their respective owners.