According to the experts at Tax Saving Professionals, a national tax consulting company, American business owners, professionals and high net-worth individuals have a choice: they can keep more of their hard earned cash in their pockets and pay less taxes to the government or simply pay it when it may not be necessary. Quarterly tax saving strategies is key to bigger savings and better financial management.
“Most Business owners and high income earners usually only have two dates in mind when it comes to their taxes,” says Ray Phair, Chief Operating Officer of Tax Savings Professionals, a national tax consulting company that has helped more than 7000 clients nationally since 1998. Says Phair “those two dates naturally are April 15th and December 31st but the truth is big cash savings and better financial management can be achieved all year round.”
Phair points to the all-important fact that business owners, high-income-earners and high-net worth individuals must, or at least should be paying quarterly taxes. By paying close attention to these critical quarterly dates it’s realistic and achievable for these higher-income earning individuals, professionals and business owners to even out the hi’s and lows, the peaks and valleys of cash flow and annual money management. “No pay or light pay on quarterly taxes can add up to a big hit in the way of penalties and interest at the end of the year,” says Phair, “equally as important, we have strategies that can also help clients to earn more income while at the same time serving as a bottom line deduction, clients are very pleased when they discover these types of opportunities exist to keep more money in their pockets.”
Says Phair, whose company works closely with accountants, attorneys and a wide range of tax professionals, and whose client base actually comes from a great deal of referrals from other tax professionals, the tax experts at works with a clients’ tax team advising how business owners, highly-paid professionals and high net-worth individuals’ can keep more of their cash, pay less taxes and use that money for myriad reasons – whether reinvesting in a business, buying inventory, making capital improvements or even for personal use, “after all,” says Phair, “who doesn’t enjoy an unexpected windfall of cash to be used for a family vacation, a home renovation or any other desired personal purchase.”
1) A business owner should know their AGI and tax rate
If you filed a federal tax return last year and have a copy of last year’s return: You can find your prior year AGI in the following places (based on the form that you filed):
- If you filed Form 1040, your AGI will be listed on line 37.
- If you filed Form 1040A, your AGI will be listed on line 21.
- If you filed Form 1040-EZ, your AGI will be listed on line 4.
If your tax rate is 30 to 35% or more and you qualify as an accredited investor, (client must meet at least one of the following to be an accredited investor), you need a tax planning advisor.
An accredited investor is anyone who meets the following criteria.
1) Earn an individual income of more than $200,000 per year, or a joint income of $300,000, in each of the last two years and expect to reasonably maintain the same level of income or
2) Has a net worth exceeding $1 million including their personal residence, either individually or jointly with his or her spouse or
3) Is a general partner, executive officer, director or a related combination thereof for the issuer of a security being offered.
Ideally, individuals should fine tune their withholding to pay only the necessary amount to avoid giving the IRS an interest free loan on your working capital. “This is just one, of many ways, we counsel our clients,” says Phair, “instead of paying high quarterly tax payments tax saving professionals saves business owners money by putting tax dollars to work for the business.”
2) Tax Implications if Anticipating a Large Capital Gain
The IRS requires you to make quarterly estimated payments if you expect to owe at least $1,000 in tax and you expect your withholding and refundable credits to be less than 90% of your estimated tax for the same year or 100% of the tax you owed last year. If you have significant capital gains from selling stocks or another type of asset this year, you’ll need to consider how you’ll pay the taxes. In addition to making sure you put aside enough money to pay the tax on your gain, you’ll want to avoid the possibility of a penalty for underpayment.
The rules are a bit different for high income taxpayers. If your adjusted gross income in 2013 was more than $150,000 (married couple filing jointly and single taxpayers) or $75,000 (married taxpayers filing separately), you have to withhold at least 110% of last year’s tax liability to avoid an underpayment penalty. Tax Saving Professionals work with qualified investors to help offset or eliminate this tax with proper planning.
3) Major life changes or business changes can have a financial impact.
Selling a business, expanding, buying a competitor, getting married or divorced? Having children or emptying the nest? Getting a job or losing one or retiring soon. These issues and frequent occurrences can have a significant impact on an individual’s tax situation. It’s imperative to check with a tax professional to understand the financial implications of any of the aforementioned scenarios.
4) “Tax Loss Harvesting”: Sell losing investments or make an investment to lower your AGI
Business owners will be able to manage their tax liability with cash from losing investments to utilize the most effective tool in the tax code by investing in either a real estate investment which hits your tax return as a charitable contribution, which in effect lowers your AGI up to 50%. By selling losing investments to offset some of the winners, this is known as tax-loss harvesting.The street name for such investment is commonly called a Conservation Easement. There is a comparable type alternate investment approach knows as “Historical Easements.” Instead of setting land aside from development it saves historical buildings from destruction or urban blight by giving a significant charitable contribution in the same manner as the land conservation. Bob Barth, Lead Tax Consultant at Tax Saving Professionals points out that, “This is a 30 year tax code that has stood the test of time.”
5) Early Planning and Optional Deductions Give Consumers a Jump on Potentially Big Tax Savings
If you itemize your deductions, you may be in much better shape to maximize their value if you do some planning before the end of the year. For example, you could look into taking a more organized and tax-effective approach to your charitable giving with the two heavy strategies mentioned in item (4). But, you might also start planning now to see the rest of the options that many CPA’s don’t want to do or aren’t comfortable with because of the documentation it takes to substantiate the deductions. The key to these deductions is the quality of the documentation and the quantity meaning months and years to show history.
6) Tax-advantaged Retirement Accounts
Once again business owners have the advantage, they can use a cash balance plan that can supersize contributions to your 401(k) up to 17.5%. Many people start the year wanting to contribute but good intentions don’t mean action. As part of good tax planning resolve to do it before you see your tax bill.
For 2014, you can contribute up to $17,500 in pretax dollars to a 401(k) or similar plan ($23,000 if you’re 50 or older), up to $5,500 to an IRA ($6,500 if you’re 50 or older), and the lessor of $52,000 or 25% of income for a Simplified Employee Pension (SEP) plan.
7) Check your tax rate and bracket for changes.
For people with large incomes, a new top-tax-bracket, a higher capital gains tax, and a new net investment income tax all went into effect in 2013. If you fell below the thresholds last year, but expect your 2014 earnings to increase significantly, you might want to bump up your withholding or estimated payments to be prepared for the higher rates. For 2014:
- The top tax bracket is 39.6% on taxable income above $406,750 for single taxpayers and $457,600 for married couples filing jointly.
- The top rate on qualified dividends and long-term capital gains is 20% for taxpayers in the top tax bracket.
- A 3.8% net investment income tax is applied to the lesser of net investment income or modified AGI above $200,000 (singles) and $250,000 (couples).
- An additional Medicare surtax of 0.9% is due on earned income above $200,000 (singles) and $250,000 (couples).
See your Tax Bracket Below