As we begin 2022, we should spend some time on our year-end clean-up. One issue that most people don’t spend enough time on is tax preparation. Taxes are the most significant expense anyone will ever have in their lives. Think about that for a minute. It is the biggest expense you will ever have in your life. More significant than your mortgage, health insurance, college, car payments, any and every expense you could have. Elon Musk is estimating $11 Billion in taxes paid in 2021. That’s just income taxes, not property, sales, auto taxes, and the list goes on. So what are you doing to ensure you are not overpaying your taxes due?
We’ve talked before about building a great team: agents, contractors, title professionals, to name a few. Two essential members of your team should be a CPA and an attorney. These two team members can help you mitigate your risk of loss and pay your taxes correctly.
When you sit down with them, make sure you get answers to the following questions:
How can I defer some income?
There are a few ways to defer income depending on your situation, so it isn’t subject to being taxed. Funding an FSA account, saving for college tuition, or contributing to a retirement account are just a few ways to get this done.
Speaking of retirement accounts, can I establish a ROTH IRA or SEP IRA to add funds to my retirement and lower my tax exposure?
Find out which of these work better for you or if you can contribute to both. Individuals can often contribute to both a SEP and an IRA, especially if they are self-employed or have self-employment income and meet the stated income guideline
Is my corporate structure set up to protect me against lawsuits?
LLC, sub-chapter S corp, sole proprietorship; which corporate entity protects you the most? A knowledgeable CPA can guide you on which is best for tax purposes, and your attorney can guide you when it comes to protecting your liability.
Am I taking advantage of all the business deductions I’m eligible for?
The types of deductions and the amounts seem to change every year. For example, business meals can be 100% deductible if they are your own meals and a part of doing business. On the other hand, if you take a client out for dinner and don’t discuss business, that is not deductible. Some others you can check into are the use of a car, education, and depreciation.
What can I do differently in 2022 to have more of my income fall under capital gains tax instead of actual income?
Long-term capital gains are taxed at lower rates than ordinary income. How much you owe will depend on your annual taxable income. You will either owe 0%, 15%, or 20% gains from the sale of most assets or investments held for more than one year. Your CPA will help you determine if you can take advantage of this.
I have this conversation every year with my CPA and Attorney. It’s a regular part of my year-end wrap-up.
We all must pay taxes—the cost of living in this great country and part of our duty as good citizens. However, we don’t want to pay more than required by law, or worse, pay less because we are getting bad advice and have a problem down the road with the IRS.
Good Luck with 2022, but remember to clean up 2021 and start the new year off with a clean slate.
If you or one of your colleagues needs hard money financing in the upcoming year, contact me by clicking here or calling 248-385-3750.