Tax Review and Planning: A Key Strategy for Professionals and Small Business Owners, Not Just the Wealthy
Tax planning is often thought of as something only the wealthy need to worry about, but in reality, professionals and small business owners—especially in industries like IT, tech, education, and STEM—can benefit significantly from proactive tax review and planning. Earning over $125,000 per year brings with it not just higher income but also greater complexity in managing finances, and many tax-saving opportunities that are often overlooked by those who wait until tax season.
Life Events & Financial Changes
Throughout life, we experience significant financial shifts: a raise, a bonus, the sale of an investment property, or a windfall from unexpected sources. Without proper tax planning, many individuals and business owners might miss out on ways to reduce their tax liability in these instances. Pre-planning around major financial events can help reduce your tax burden and prevent unexpected financial strain. For example, deciding to sell an investment property may trigger capital gains taxes that could have been reduced with strategic reinvestment or tax deferral options, like a 1031 exchange.
Small Business Planning & Investments
As a small business owner, strategic planning is critical for maximizing deductions and minimizing taxes. Timing your business expenses—such as purchasing equipment or materials—can make a significant difference. Reviewing your projected income and expenses at the end of the year can help you decide whether to defer income or accelerate expenses into the current year, maximizing the deductions for your LLC or corporation. For those in IT and tech who may have fluctuating revenue, planning ahead allows you to better manage your tax burden in profitable years versus slower ones.
Last-Minute Tax Strategies
Even if you’re approaching the end of the year, there are still opportunities to reduce your tax bill. Common last-minute tax-saving strategies include:
- IRA contributions: Maxing out your traditional IRA can reduce taxable income.
- Roth IRA conversions: Shifting pre-tax retirement funds into a Roth IRA during lower-income years allows you to grow assets tax-free.
- Charitable contributions: Making donations to qualified organizations can also result in significant deductions.
These steps, while seemingly simple, can make a notable difference when used in the right context, especially if they align with long-term financial goals.
The Benefits of Reviewing Last Year’s Return
Many professionals and business owners are surprised to learn how much they could save by reviewing their previous tax returns. This process often reveals missed deductions, overlooked credits, or ways to better structure income and expenses moving forward. Our firm can use your 2023 returns to provide a comprehensive analysis and offer strategies for the 2024 filing season, ensuring you’re not leaving money on the table.
Additional Overlooked Reasons for Tax Planning
1. Education expenses: Tax credits like the Lifetime Learning Credit or deductions for qualified tuition can often be overlooked. Planning ahead allows you to maximize these opportunities.
2. Health Savings Accounts (HSAs): If you have a high-deductible health plan, contributing to an HSA offers a triple tax advantage: pre-tax contributions, tax-free growth, and tax-free withdrawals for qualified expenses.
3. Qualified Business Income Deduction (QBI): If you're self-employed or a small business owner, you may be eligible for a deduction of up to 20% of your qualified business income, but this requires strategic planning to optimize.
Start Planning Now
Tax planning doesn’t have to be overwhelming, but it does need to be proactive. The decisions you make today can have a lasting impact on your financial future. Let’s work together to review your financial picture, identify tax-saving strategies, and prepare you for a successful year ahead. Reach out to us to schedule a comprehensive tax review—your future self will thank you.