Introduction to Tax Planning: The Basics

April 4, 2022 by fasnew@fasnew@66541.6486513

Introduction to Tax Planning: The Basics

Tax planning means examining your financial situation with the goal of reducing tax liability. A tax plan works to ensure that each financial element of a plan works together to reduce your total tax bill as much as possible. Through tax planning, you can make contributions to retirement plans and investments that have the best impact on reducing your tax bill each year. Since retirement plans and investments can have a large effect on taxes owed, it’s important to consider these elements when you’re creating a tax plan. Tax planning also includes thinking about how businesses should arrange their income and expenses each year to create a lower total tax bill for the business overall.

Primary objectives of Tax Planning

Tax planning means taking all appropriate steps to reduce your tax liability while reducing the impact of taxes on your overall financial picture. It’s about ensuring that you follow the letter of the law, as well as its spirit. It’s about being proactive–about ensuring that when it’s time to pay your taxes, you’ve taken every available precaution to minimize your outlay and maximize your return. Tax planning applies to both individuals and businesses. In fact, tax planning is essential for any business owner or investor who wants to remain profitable and free from legal entanglements.

Importance of Tax Planning

In today’s financial climate of ultra-low bank interests and economic uncertainty, tax planning is a necessity for anyone who wants to see real returns on their investment. Tax planning is not just about minimizing your tax burden. It’s also about maximizing your returns by taking inflation into account, as well as taxes, expenses, and so on.

For example, the property market has been showing strong signs of recovery over the last few years. However, this isn’t necessarily good news for all investors. There are currently a lot of government grants available for first-time homebuyers that can mean big savings on stamp duty and other associated costs. But keep in mind that these high capital gains taxes will eat up any profits you make in the long run. That’s why it’s important to get professional investment advice when looking at properties to purchase. Professional advisers can help you identify any additional costs or risks you might not have considered if left to your own devices—and they can help you figure out ways to take advantage of current grants and tax credits while still keeping your tax bill as low as possible.

Lower Tax Bills

Paying low taxes puts less strain on individuals and companies; working toward tax efficiency is the best way to hold assets and capital together. People living abroad may find assets that were tax-efficient in their home country taxable in their country of residence. Reviewing tax plans can reduce the tax bills, resulting in more improved financial stability.

Tax Payment Flexibility

Proper tax planning gives individuals and businesses more flexibility when paying taxes. This flexibility means payments can be made at the most appropriate times for personal and business finances. As a result, people are less likely to pay more taxes than necessary, giving them control over their finances. This makes it easier to budget effectively, which in turn leads to greater financial sustainability.

Tax Planning Advantages

Get a head start

Businesses operating under a trust can take advantage of tax planning to estimate distribution early enough in the year, saving the need to make decisions out of rush. Tax planning allows businesses to look at the available options and strategize according to the analyzed data.

Minimized Litigation

Avoiding or evading taxes is an action taken by people who find the tax rates too high. Tax planning helps taxpayers and the government resolve their differences by paying taxes properly, as the government seeks to collect taxes while the taxpayers look for ways to pay less. Thus, tax planning can save citizens and entities from legal troubles.

Seeing the Bigger Picture

Tax planning helps individuals and businesses map out their financial future. Business owners discover ways to change the business structure to increase profits. As a result, a business owner finds new investments and looks for untapped sources of revenue.

Economic Growth

Taxes pay for the projects that help our country grow and thrive, including development projects. A solid tax planning strategy is essential for any business, as well as personal finances. Some of the benefits of good tax planning include creating more money for your savings account, increasing your business’s stability, and avoiding bankruptcy because you can’t cover your bills and loan payments. The health of a country’s economy benefits both citizens and the entire country.

Tax Planning Types

Purposive Tax Planning

In this type of tax planning, you use intelligent strategies to take advantage of tax provisions to achieve a certain financial goal, such as changing your investment strategy or diversifying your business activities.

Permissive Tax Planning

Permissive tax planning involves taking advantage of various exemptions and deductions while following all the rules that apply to you.

Short-Range Tax Planning

Temporary tactics are implemented in this type of tax planning strategy. These temporary tactics are implemented at the end of the year to achieve certain specific tax objectives.

Long-Range Tax Planning

Polar to short-range tax planning, this type of strategy forms long-term tactics at the start of the year and the results of the formulated strategies are expected only in the long run.

Disadvantages of Tax Planning

Tax planning can be of great help in reducing your tax liability and increasing your savings. However, there are some downsides to tax planning that you should consider before investing your hard-earned money in tax-saving products.

Usually, tax planning results in the blocking of funds to purchase a particular investment product. This can impact short-term liquidity and flexibility. This can especially be a concern for senior citizens who need a certain amount of cash for daily needs and medical expenses.

At times, taxpayers tend to confuse tax planning with tax evasion and end up misinterpreting certain provisions. This may lead to an increase in their income tax liability or even attract penalties or interest charges.

Bottom line

Tax planning can help you reduce the overall tax burden. However, it is important to know that you should stay within the limits of the tax laws while planning your taxes. This means you should not engage in any activity that helps you cut down your tax liability without paying heed to the fact that there are certain rules in place for tax planning.

One of the most popular ways to plan your taxes is by investing in different instruments. For example, there are several investment options available today such as stocks, mutual funds, bonds etc., where you can invest your money and earn returns on them. However, before investing in any of these instruments, you need to understand how they work and whether they can actually help you save taxes or not.

If you need expert help in planning your taxes, send us an email today and we’ll have our expert Enrolled Agent get in touch with you!

You still have time to make an IRA Contribution for 2021!

March 31, 2022 by fasnew@fasnew@66541.6486513

You still have time to make an IRA Contribution for 2021!

Are you behind in your 2021 IRA Contributions? Don’t worry, you still have time to make an IRA contribution for 2021. If you haven’t contributed funds to an Individual Retirement Account (IRA) for the tax year 2021, or if you’ve put in less than the maximum allowed, you still have time to do so. You can contribute to either a traditional or Roth IRA until the April 18, 2022, due date (April 19 if you live in Maine or Massachusetts), not including extensions.

The good news is that you can make your 2021 IRA contribution at any point while the tax year is active. But before you do, we have a friendly reminder: make sure that you tell the trustee who holds your IRA account that the contribution is for 2021. This helps them report it correctly, and it ensures that the funds are added to your account in a timely manner.

You can contribute up to $6,000 of your earnings for tax year 2021 (up to $7,000 if you are age 50 or older) to an IRA, either a traditional IRA or a Roth IRA (if you qualify). You can choose to fund both, but your total contributions cannot be more than these amounts.

Traditional IRA

You may be able to take a tax deduction for the contributions to a traditional IRA, depending on your income and whether you or your spouse, if filing jointly, are covered by an employer’s pension plan.

This means that even if you don’t meet some of the qualifications for deducting an IRA contribution from your taxes, you still may be able to do so. For instance, if you have a high income and are covered by a pension plan at work, you may be able to deduct your contribution up to the amount of your total compensation.

The IRS website has more information on how to qualify for a tax-deductible IRA contribution.

Roth IRA

You cannot deduct Roth IRA contributions, but the earnings on a Roth IRA may be tax-free if you meet the conditions for a qualified distribution.

Roth IRAs are funded with after-tax dollars, so you cannot deduct your contributions from your taxes.

If you take out your money before age 59 1/2 (or before age 55 if you have changed jobs), you will have to pay taxes and penalties on that money unless you qualify for an exception (for example, if you are disabled or use the money to buy a first home).

A qualified distribution happens when:

You take out your money after age 59 1/2
You take out your money because of death or disability
You take out your money to buy a first home for up to $10,000

Each year, the IRS announces the cost of living adjustments and limitations for retirement savings plans

To ensure you’re saving as much as possible, check out the newest updates each year.

Bottomline

You’ve probably heard it before, but saving for retirement should be an important part of anyone’s financial planning. It’s important to review your retirement goals each year and make sure you’re maximizing your savings.

Need help navigating your tax compliance this year? Hurry and send us a message today while you still have time to file your taxes!

Get in touch with us!

Why Are Social Security Benefits Taxable?

March 24, 2022 by fasnew@fasnew@66541.6486513

why are my social security benefits taxable

Why Are Social Security Benefits Taxable?

Retirement and disability benefits administered by the Social Security Administration (SSA) are taxable. You pay federal income taxes on your benefits only if you have other substantial income in addition to your benefits. Your income and filing status affect whether you must pay taxes on your Social Security benefits. About 40 percent of Social Security beneficiaries pay federal income taxes.

The Social Security Administration will send you a Form SSA-1099, Social Security Benefit Statement, each year to show the amount of benefits you received. Include this statement with your federal income tax return to find out if you must pay taxes on your benefits.

You can determine whether any of your benefits are taxable by adding one-half of the Social Security money (collected during the year) to your other income. Other income includes pensions, wages, self-employment, interest, dividends, capital gains, and any other taxable income that must be reported on your tax return. On the 1040 tax return, your combined income is the sum of adjusted gross income plus nontaxable interest plus half of your Social Security benefits.

Filing an Individual Federal Tax Return

If your combined income (adjusted gross income + nontaxable interest + 1/2 of your Social Security benefits) is between $25,000 and $34,000 for the year, you may be required to pay income tax on up to 50 percent of your benefits.
If it is more than $34,000, up to 85 percent of your benefits may be taxable.

Filing a Joint Federal Tax Return

If you and your spouse have a combined income that is between $32,000 and $44,000, you may have to pay income taxes on up to 50 percent of the amount of any Social Security benefits that you receive.
Up to 85% of your benefits may be taxable if your combined income is more than $44,000.

Filing Separately as a Married Taxpayer

Up to 85% of social security benefits may be taxable if you are:

A married taxpayer who lived apart from your spouse for all of 2021 with more than $34,000 income
A married taxpayer who lived with your spouse at any time during 2021

Work Pension

If you receive a pension based on work for which you paid Social Security taxes, your pension will not reduce your Social Security benefit. If you are retired or disabled and receive a pension from employment not covered by Social Security, your Social Security benefits may be reduced.

Retiring abroad?

Generally, in other countries, you’re not taxed on income that you receive as retirement pay from the United States. As a U.S. citizen who is retiring abroad and receiving Social Security, for example, you may owe U.S. taxes on your income but may not be liable for tax in the country where you’re spending your retirement years.

Tax laws treat benefits from the Social Security program differently from most other forms of income. For some individuals, Social Security benefits may not be taxable, and you may not need to file a federal income tax return. However, if you receive income from other sources and are a citizen or resident alien of the United States, or are a citizen of another country but are covered under the U.S. social security system because you worked in the United States, then you may have to pay U.S. taxes on some of your benefits – the same as if you were still living in the U.S.

You may also be required to report income earned in the country where you retired and pay taxes on that income. Each country is different, so consult a local tax professional specializing in expatriate tax services.

Help is just an email away

If you receive Social Security and you’re not sure if it is taxable, an Enrolled Agent can help you determine if some or all of your benefits are taxable!

Get in touch with us today!

How to choose the best tax preparer near you – Here’s what you should look for!

March 23, 2022March 23, 2022 by fasnew@fasnew@66541.6486513

how to choose the best tax preparer in my area

How to choose the best tax preparer near you – Here’s what you should look for!

Do you feel like taxes are getting harder and harder every year? Do you find yourself asking how will you find the best tax preparer in my area? Well, you’re not alone! Taxes are getting harder and harder as the years go by, if tax preparation is too much to handle yourself this year and think that you need some help with tax preparation this year, check out this checklist to find the right person for the job.

When you hire a tax preparer, it helps to ask what credentials and certifications they have.

It might come as a surprise to you, but tax preparers have access to your most personal details, including your bank accounts, marriage, and kids — and your Social Security number.

Taxpayers should ask prospective tax preparers some key questions before hiring them. Here are 5 things that to consider that can help you choose the best tax preparer near you.

Find a tax preparer with an Enrolled Agent designation

The Enrolled Agent designation is one credential that stands out when it comes to the field of tax preparation! Enrolled Agents are certified by the Federal Government through the IRS to prepare taxes for everyone. Enrolled Agents also go through the IRS’ Annual Filing Program to ensure that they are up to date with the latest rules and guidelines concerning your taxes. The Accredited Business Accountant/Advisor and Accredited Tax Preparer programs prepare people to fulfill annual filing season requirements. These credentials require varying amounts of study, exams, and ongoing education.

Watch out for Tax Preparer Red Flags

Because there are many people claiming to be tax preparers, it can be difficult to know who’s right for you. Here are a few red flags that could mean someone isn’t legitimate.

- Promises the moon when it comes to your tax refund
  
  When looking for a tax preparer you can fall for the “it’s-too-good-to-be-true” trap. The trap involves promises of high tax returns that are significantly higher than what you usually get for the past few years. Unless your income, family situation, or the tax law has changed significantly, your tax refund should be similar from year to year. Be wary of anyone who says they can get you a refund far in excess of anything you’ve received in the past.
- Won’t sign the return
  
  The law requires those who prepare taxes to sign the tax return that they have prepared! If you find yourself with a tax preparer that outright refuses to sign a return, do not put your signature on the paper. Find another tax preparer that will willingly sign the tax return that he or she has made and then you can have the peace of mind of placing your signature on the return since your tax preparer placed theirs on the return.
- Doesn’t have a website
  
  You should choose an independent tax preparer who has a permanent business presence and is easy to find. You’ll want to be able to find him or her if you’re audited or have any questions about your return.
- Charges you based on your refund
  
  Legitimate tax preparers charge their clients either an hourly fee or a flat rate for their work. Avoid those who charge based on the size of your refund; this practice is considered unethical by the National Association of Tax Professionals.
- Listen to your gut
  
  When deciding on a preparer, go with your gut and trust your instincts. If something about a tax preparer doesn’t feel right—they seem to gloss over or misunderstand your questions or tax situation, for instance—it might be best to keep looking for someone else to handle your return.

Interview Tax Preparers in your area

You can learn a lot by researching the tax preparer online, but nothing beats a personal discussion. This is particularly true when you’re looking for a long-term tax preparer that you can trust. Tax season is busy, so don’t expect a deep conversation. But make sure to ask your tax preparer for a five to ten-minute phone call at least. During the call, get the following information if it is not readily available on the preparer’s or professional’s website:

How they handle and store your sensitive financial documents.
Are the charges based on a flat fee or an hourly rate?
How many years have they been in the business?
Do they prepare the returns themselves or have a staff to assist.
Do they file tax returns electronically?
Are they an Enrolled Agent.

Runaway from Tax Preparers who still file by paper

Tax preparers who file 10 or more taxes per year are required to file electronically. If your tax preparer refuses to file electronically, this might mean that they don’t do that much tax preparation to have the knowledge and skills to properly file your taxes.

Bottom line

Anyone can pose themselves as a tax preparer by simply having a PTIN. However, preparing taxes is complicated work that requires years of experience and technical tax knowledge to properly execute. Getting stuck with a tax preparer that doesn’t have the experience or technical tax knowledge of an Enrolled Agent might result in mistakes in your tax returns and it could lead you to hot waters. Take these tips in mind when you are looking for a tax preparer so you can save yourself the hassle of an IRS audit!

Rushing to meet the 2022 tax deadline and need a trustworthy tax preparer to help you out? Don’t worry we’ve got you covered!

Get in touch with us today! We are located at 24044 Cinco Village Center Blvd 100, Katy, TX. You can call us at +713 855 8035