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Last Minute Tax Tips For 2021

Local CPA's Offer Advice to Help Take the Sting out of income taxes

Without a doubt, December is one of the most special times of the year. It is a month filled with joy and good cheer as we celebrate the holiday season with our families and friends.

However, December also begins the countdown to the dawn of a new year. While the future is filled with many unknowns, one thing is certain – we must file our federal income tax returns by Apr. 15.

To help us gain a better handle on how to best prepare for the coming tax season, we spoke with CPAs Sean Roach and Taylor Hooks to get their professional perspectives. During our discussion, they provided us with their top five tips for individual and business filers.

 

Individual

1.       Accelerate income and defer expenses

As always, when tax rates are increasing, taxpayers should accelerate income into the current year so that they can pay taxes at the current lower rates. Therefore, they should defer certain expenses into the next year where they may be eligible to itemize.

2.     Create a “donor-advised” fund

Donor-advised funds are accounts that are created and funded by cash, securities and/or appreciated asset contributions. Owners can direct fund custodians to donate portions of their account balances to whichever charities they choose. The deduction received is based up on the amount contributed, not the amount spent.

3.     Donate required minimum distributions (RMDs) directly to charities

Taxpayers who are 72 or older must take taxable RMDs from retirement accounts, even if they don’t need the money. In order to avoid this liability, taxpayers can send their distributions directly to charities, eliminating the RMD tax consequences.

4.     Establish a Healthcare Savings Account (HSA)

HSA’s are accounts that can be used to pay for medical expenses that are not covered by insurance. Deductions for HSA contributions can be taken even if filers use the standard deduction.

5.     Consider Roth IRA conversions

Conventional IRAs are funded with pre-tax dollars and taxed at distribution, whereas Roth IRAs are funded with post-tax dollars and are not taxed upon distribution. Assuming tax rates will rise in the future, conventional to Roth conversion may make sense for taxpayers.

Business

1.     Section 179 expense

Taxpayers can elect to expense equipment purchases up to $1,050,000 in a single year, resulting in significant tax savings. However, the amount deductible cannot exceed the aggregate taxable income for the year.

2.     Adopt a Qualified Retirement Plan

One of the best tax reducing strategies for businesses is the creation and funding of qualified retirement plans by Dec. 31. These plans also serve as valuable employee benefits that can help attract and retain workers.

3.     Analyze aggregate income before year end

Most small businesses use the cash basis of accounting. As a result, business owners need to be careful as to how they structure their transactions to make certain that they avoid any unintended tax consequences.

4.     Prepare for filing and reporting requirements at the beginning of the new year

There are myriad federal and state reporting requirements that require action early in the new year. Failure to prepare for or to comply with these obligations can result in significant penalties and fines for businesses. Regular tax planning sessions with tax advisors can help eliminate this risk for business owners.

5.     Revise tax projections and estimated tax payments

Both businesses and individuals should make sure that their income and tax projections are up to date before year end and that all estimated tax payments have been made. Timely and accurate filing can avoid significant tax underpayment penalties.

Sean Roach & Associates

128 Harlan Avenue,

Hendersonville, TN 37075

615.265.8180

Srcpas.com