Top Tax Planning Strategies for the Starters

Effective tax planning can help you accomplish your financial goals and also take you a long way. The demands of running your practice can keep you on your toes. It is important to set and review your tax strategy. For the beginners, here’s a list of top 5 tax planning strategies.

Minimize the New Medicare Tax on Personal Investment Income

You can do this by reducing the rent charged to the business for personally owned equipment and building.  It helps to increase the retirement plan and IRA contributions, investing in tax-free bonds, gifting investment assets to lower bracket charity or family members and reducing capital gains through tax-free exchanges and harvesting capital losses.

Optimize the Way Your Business is Structured

Often the business owners can reduce the payroll taxes by taking a lower salary with the remaining profit distributed as a dividend. It can reduce the payroll taxes and income on the sale of your practice and lower the IRS audit risk and exposure.

Leverage the Tax Credits

Tax credits are for things like offering medical insurance, energy and more.  To fully leverage your tax credits, you should have a knowledgeable tax professional to let you know what credits to apply to your business. The corporate income losses from prior years can be used as credits against the income tax due.  Either the losses carry back 2 prior years or carry forward for 20 years.  So consult your tax professional for the best strategy for you.

Track Unappropriated Retained Earnings

Unappropriated retained earnings refer to the net income that has not been allocated as income to the officers or shareholders. They are distributed as dividends usually and taxable at that time. The timing of distribution can affect your tax bill.

Maximize Your Deductions

If you are claiming itemized deductions, you can take advantage of Net Operating Loss Carryover.  Remember that the Net Operating Loss Carryover should be shown clearly on prior income financial statements and tax returns. You can claim your Net Operating Loss Carryover within 3 years of from the year in which the loss was incurred.

Mind the Excess Income Tax Payments

If you have overpaid your income tax, you can apply the tax credit to the following year or get a refund. So keep in mind the option to carry over is irrevocable.

Consult the professionals for the best planning tax strategies.