Tax Saving Strategies – Frequently asked questions by tax payers.

In our practice, tax payers often have a slew of questions relating to the best possible ways to save money and ultimately pay the least amount of taxes legally possible. As of such, Metro Accounting And Tax Services, CPA has complied these question with the requisite answers in an attempt to help these tax payers. If you have any additional questions, feel free to contact our office at 404-990-3365 and we’ll be happy to provide you with the guidance needed.

What special deductions can I get if I’m self-employed?

As a self-employed tax payer, you may be able to take an immediate expense deduction of up to $510,000 for 2017 ($500,000 in 2016), for equipment purchased for use in your business, instead of writing it off over many years. There is a phaseout limit of $2,030,000 in 2017 ($2,010,000 in 2016). Additionally, self-employed individuals can deduct 100 percent of their health insurance premiums. You may also be able to establish a Keogh, SEP or SIMPLE IRA plan and deduct your contributions (investments).

Can I ever save tax by filing a separate return instead of jointly with my spouse?

A tax payer may sometimes benefit from filing separately instead of jointly with their spouse. Consider filing separately if you meet the following criteria:

  • One spouse has large medical expenses, miscellaneous itemized deductions, or casualty losses.
  • The spouses’ incomes are about equal.

Separate filing may benefit such couples because the adjusted gross income “floors” for taking the listed deductions will be computed separately.

Why should I participate in my employer’s cafeteria plan or FSA?

In 2017 (as in 2016), medical and dental expenses are deductible to the extent they exceed 10 percent of your adjusted gross income (AGI). As such, many tax payers are not able to take advantage of them. There is, however, a way to get around this if your employer offers a Flexible Spending Account (FSA), Health Savings Account or cafeteria plan. These plans permit you to redirect a portion of your salary to pay these types of expenses with pre-tax dollars.

What’s the best way to borrow to make consumer purchases?

For tax payers who are also homeowners, it’s the home equity loan. Other consumer-related interest expenses, such as from car loans or credit cards, is not deductible.

Interest on a home-equity loan can be deductible. It is important that the tax payer avoid other nondeductible borrowings and use a home-equity loan if there is a need to borrow for consumer purchases.

What’s the best way to give to charity?

It is often the care where tax payers are philanthropic in nature, if you’re planning to make a charitable gift it generally makes more sense to give appreciated long-term capital assets to the charity. This is the preferred method to make your donation instead of selling the assets and giving the charity the after-tax proceeds. Donating the assets instead of the cash avoids capital gains tax on the sale, and the tax payer can obtain a tax deduction for the full fair-market value of the property.

What tax-deferred investments are possible if I’m self-employed?

The tax payer should consider setting up and contributing as much as possible to a retirement plan. These are allowed even for a sideline or moonlighting businesses. Several types of plan are available: the Keogh plan, the SEP, and the SIMPLE IRA plan.

I have a large capital gain this year. What should I do?

If the tax payer also have investments with accumulated losses, it may be advantageous to sell those investments prior to year-end. Capital losses are deductible up to the amount of your capital gains plus $3,000. If you are planning on selling an investment on which you have an accumulated gain, it may be best to wait until after the end of the year to defer payment of the taxes for another year (subject to estimated tax requirements).

What other tax-favored investments should I consider?

The tax payer should also take into consideration growth stocks that is held for the long term. No tax is paid on the appreciation of such stocks until you sell them. No capital gains tax is imposed on appreciation at your death.

Interest on state or local bonds (“municipals”) is generally exempt from federal income tax and from tax by the issuing state or locality. For that reason, interest paid on such bonds is somewhat less than that paid on commercial bonds of comparable quality. However, for individuals in higher brackets, the interest from municipals will often be greater than from higher paying commercial bonds after reduction for taxes.

For high-income taxpayers living in high-income-tax states, investing in Treasury bills, bonds, and notes can pay off in tax savings. The interest on Treasuries is exempt from state and local income tax.

How can I make tax-deferred investments?

Through the use of tax-deferred retirement accounts the tax payer can invest some of the money that they would have otherwise paid in taxes to increase the amount of their retirement fund. Many employers offer plans where the tax payer can elect to defer a portion of their salary and contribute it to a tax-deferred retirement account. For most companies, these are referred to as 401(k) plans. For many other employers, such as universities, a similar plan called a 403(b) is available.

Some employers match a portion of employee contributions to such plans. If this is available, you should structure your contributions to receive the maximum employer matching contribution.

What can I do to defer income?

If the tax payer is due a bonus at year-end, a good strategy to employ would entail the deferring of the receipt of these funds until January. This can defer the payment of taxes (other than the portion withheld) for another year. If the tax payer is a self-employed individual, defer sending invoices or bills to clients or customers until after the new year begins. Here too the tax payer can defer some of the taxes, subject to estimated tax requirements.

The tax payer can achieve the same effect of short-term income deferral by accelerating deductions, for example, paying a state estimated tax installment in December instead of at the following January due date.

Why should I defer income to a later year?

Most tax payers are in a higher tax bracket in their working years than during retirement. Deferring income until retirement may result in paying taxes on that income at a lower rate. Deferral can also work in the short term if the tax payer expects to be in a lower bracket in the following year or if you can take advantage of lower long-term capital gains rates by holding an asset a little longer.

User | 29/01/2018