If the mere mention of tax season makes your heart race (as if you’re watching a scary movie at the dentist), have no fear—we’ve got you covered. The season is upon us, but Sue Burnett, founder and CEO of Monarch Financial Advisors, and Matt Ackermann, owner of Ackermann CPA, know how to use tax rules to your advantage—and make dealing with the IRS a breeze. They’re sharing expert tips from more than 50 years combined experience—to help reduce both tax payments and little anxiety.
PERSONAL TAXES
Watch for errors on the tax documents you receive.
The information provided to you may be wrong. “We calculated the correct stock basis on a client’s 1099-B, which reduced the amount they owed on capital gains from $15,000 to $5,000,” recalls Matt. “Another client received duplicate 1099s from the same company, and thought they’d have to pay twice. We untangled the error with the IRS, resulting in substantial savings.”
Sell your primary residence recently? The transaction must be reported if you received a 1099-S, even if you don’t owe taxes on the gain.
Fair warning—if you skip reporting a home sale and did receive a 1099-S, a letter from the IRS is in your future. It can be more than a little intimidating to find out you didn’t report all of your income, and now owe tens of thousands in taxes. Always report!
(Tax) timing is everything.
If you have an IRA, it may make sense to convert part of it to a Roth when tax rates are down or your income is lower—that way, future investment gains aren’t taxed. There are strategies to use for charitable giving, too, like donating several years’ worth of planned contributions at once to a donor advised fund. Your donation amount doesn’t change, but your taxes may be reduced.
If you receive an IRS letter disagreeing with your calculations, don’t assume they’re right.
Look closely at any IRS notices sent to you. Sometimes the error is obvious and the fix is simple, but contacting the IRS to get it resolved can be time-consuming and stress-inducing. Having a financial professional on your side, working with the IRS on your behalf, is smart in this situation—especially when interest penalties are accumulating.
BUSINESS TAXES
Retirement plans offer significant tax savings.
While individuals can contribute $6,500 to an IRA, a business may be eligible to contribute up to $300,000 per owner to a qualified retirement plan. The contribution is deductible to the business, and provides a huge boost to the owner’s retirement savings—definitely a win-win.
Higher income business? Reconsider filing a Schedule C.
Some people automatically file using Schedule C for business income and expenses because it’s easy—but your taxes are likely too high. Depending on net income, changing from a Schedule C filing to an S-Corp may save you thousands per year in self-employment taxes.
Stay up-to-date on special tax cuts and low-interest loans available to some business owners.
Covid-related help from the government has resulted in a lot of new opportunities for businesses that owners may not realize. Matt notes one client’s relief, “They applied for the first round of PPP loans, but didn’t realize they were eligible for the second round. With our help, they received another $50,000!”
Most important, if you’re considering starting a business in 2022—keep track of your expenses and revenue.
Whether you use a software program or a shoebox, keep track of your incoming and outgoing money from the start—and separate from your personal assets. Using software that can generate reports is helpful.
Still overwhelmed? Initial consultations with these two pros are free.