‘Tis the Season for Tax Planning
October, November, and December mean that it is not only the holiday season but it’s Tax Planning Season for our tax law firm. Please take a look at some planning ideas and announcements that we are thinking about and give me a call if you would like to discuss your tax and financial situation. Remember tax planning is time sensitive and some types of strategies need to be implemented before the end of the year.
Stay safe and healthy,
Founding Partner, Moskowitz, LLP
In This Issue
- Eearly Bird Tax Preparation Special!
- Tax Planning Tips
- 2021 Year-End Tax Planning
- Retirement Savings Tips for Small Business Owners
- The Power of Comparative Financial Statements
- Steve’s Recent Podcasts and Webinars
Worms Aren’t on Sale, But: Take Advantage of End-of-Year Discounted Tax Preparation Services
Get your 10% Discount now!
- Hire us before December 31, 2021 and receive a 10% discount and, if you qualify, receive a tax deduction for the tax preparation fees.
- Hire us before January 31, 2022 and receive a 5% discount.
- February 1st and after, no discount, but we are still available to prepare your returns.
How much will this all cost?
The cost of the preparation of your return depends greatly on the complexity of the return. Please request a quote or contact us for your tax preparation fees if your tax situation has changed greatly from the prior year.
“Failing to plan, is planning to fail.”
– Benjamin Franklin
This year, there were several changes and additions to the tax law, and tax planning for 2021 offers individuals and businesses a myriad of new (as well as time tested strategies) that should be considered to lower your tax burden or even allow you to obtain an expedited refund for prior-year tax payments if you qualify.
Tax Moves to Make Before Year-End
There are always moves you can make to reduce your taxable income. Some of these tax-saving moves, however, must be completed by December 31. Here are several to consider:
- Tax loss harvesting. If you own stock in a taxable account that is not in a tax-deferred retirement plan, you can sell your underperforming stocks by December 31 and use these losses to reduce any taxable capital gains. If your net capital losses exceed your gains, you can even net up to $3,000 against other income such as wages. Losses over $3,000 can be used in future years. Just be sure you do not repurchase the same stock within 30 days, or the loss will be deferred.
- Take a peek at your estimated 2022 income. If you have appreciated assets that you plan on selling in the near future, estimate your 2022 taxable income and compare it to your 2021 taxable income. If your 2022 income looks like it may be significantly higher than 2021, you may be able to sell your appreciated assets in 2021 to take advantage of a lower tax rate. The opposite also holds true. If your estimated 2022 taxable income looks like it may be significantly lower than your 2021 taxable income, lower tax rates may apply if you wait to sell your assets in 2022.
- Max out pre-tax retirement savings. The deadline to contribute to a 401(k) plan and be able to reduce your taxable income on your 2021 tax return is December 31. See if you can earmark a little more money from each of your paychecks through the end of the year to transfer into your retirement savings accounts. For 2021, you can contribute up to $19,500 to a 401(k), plus another $6,500 if you’re age 50 or older. Even better, you have until April 18, 2022, to contribute to a traditional IRA and be able to reduce your taxable income on your 2021 tax return.
- Bunch deductions so you can itemize. Are your personal deductions near the amount of the standard deduction for 2021: $12,550 for singles, $18,800 for head of household and $25,100 for married filing jointly? If so, consider bunching your personal deductions into 2021 so you can itemize this year. For most, the easiest way is to bunch two years of charitable contributions into a single year. These can include gifts of appreciated stock where you get to deduct the fair market value without paying capital gains tax.
Clients with more complex income and tax situations should schedule a tax planning meeting with Moskowitz LLP as soon as possible.
Year-End Tax Planning Ideas For Your Business
Here are some ideas to lower your business taxes, get organized, and to prepare for filing your 2021 tax return.
As 2021 winds down, here are some ideas to consider in order to help manage your small business and prepare for filing your upcoming tax return.
- Identify all vendors who require a 1099-MISC and a 1099-NEC. Obtain tax identification numbers (TIN) for each of these vendors.
- Determine if you qualify for the Paycheck Protection Program (PPP) safe harbor threshold that allows you to deduct certain 2020 expenses on your 2021 tax return.
- Consider accelerating income or deferring earnings, based on profit projections.
- Section 179, or bonus depreciation expensing versus traditional depreciation, is a great planning tool. If using Section 179, the qualified assets must be placed in service prior to year-end.
- Business meals are 100% deductible in 2021 if certain qualifications are met. Retain the necessary receipts and documentation that note when the meal took place, who attended and the business purpose of the meal on each receipt.
- Consider any last-minute deductible charitable giving including long-term capital gain stocks.
- Review your inventory for proper counts and remove obsolete or worthless products. Keep track of the obsolete and worthless amounts for a potential tax deduction.
- Set up separate business bank accounts. Co-mingling business and personal expenses in one account is not recommended.
- Create expense reports. Having expense reports with supporting invoices will help substantiate your tax deductions in the event of an audit.
- Organize your records by major categories of income, expenses and fixed assets purchased to make tax return filing easier.
- Review your receivables. Focus on collection activities and review your un-collectable accounts for possible write-offs.
- Get your financial statements in order.
- Make your 2021 fourth-quarter estimated tax payment by January 18, 2022.
For more ways to save on your businesses year-end tax bill, check out our recent blog post: 7 Things You Should Do Before Year-End To Reduce Your 2021 Tax Bill
Retirement Savings Tips for Small Business Owners
As an owner of a small business, you’ve proven that you’re a self-starter by operating a successful private enterprise. Of equal importance is applying your skills towards saving for your future. Here are some of the most popular tax-advantaged retirement vehicles for for small business owners in 2021 and some tips on saving for retirement.
Read the full articleto understand your options and which plan to choose.
More than 20 different types of pension plans exist, such as the Cash Balance Plan. The more sophisticated plans provide qualifying businesses and individuals to contribute and deduct from their taxes far greater amounts than the simpler plans above, allowing the qualified business owners to yearly contribute hundreds of thousands to millions of dollars for themselves.
Download our free white paper covering Cash Balance Plans.
Major benefits of pension plans include:
- Tax savings – reduce your federal and state income taxes by providing for your future
- Cash flow advantages. Other tax deductions require payment by the end of tax year 2021 but not qualified pension plans. Unlike 401K plans, some other qualified pension plans allow for a 2021 income tax deduction for contributions up to the filing due date of the tax return, including extension. Which means that you have about ¾ of 2022 to make a contribution that you can deduct from your 2021 tax return. Consult with your tax planner before the end of year to determine your contribution and funding due dates.
Tax Accounting and Advisory Services
At Moskowitz LLP, we recognize that our clients look to us for more than defending tax audits, tax law disputes, and cleaning up old tax and accounting problems. We also blend tax and accounting services with strategic planning and consultation.
Did you know that Moskowitz LLP offers the following tax accounting and advisory services?
- Accounting Assistance
- Financial statement preparation
- Budgeting and forecasting
- Business Restructuring & Turnaround Services
- Profit Optimization
The Power of Comparative Financial Statements
Your business has a story to tell. And one of the ways to hear your business’ story is by reading through comparative financial statements.
The importance of comparative financial statements
An up-to-date balance sheet, income statement and statement of cash flows are essential financial reports you should consistently analyze. But these financial statements by themselves don’t tell the whole story about your business. Consider the following:
- Company XYZ: The most current balance sheet shows $1 million in liquid assets with zero liabilities.
- Company ABC: The most current income statement has a net profit margin of 35%.
- Company 123: The statement of cash flows shows that the company has consistently brought in more cash than it has spent over the past three years.
And here’s the rest of the story:
- Company XYZ: Liquid assets decreased from $5 million to $1 million over the past 12 months.
- Company ABC: Net profit margin is typically around 20% for this company. However, a recent round of layoffs temporarily pushed total salaries and wages lower, while pushing the net profit margin much higher.
- Company 123: There has been a steady decline in positive cash flow over the past three years.
These examples show the importance of analyzing your financial statements in comparison with something else. Reading through the first list of bullet points only tells part of the story.
What you can do
Here are several types of comparative financial statements you can create for your business and some tips for getting the most out of these reports.
- Current period vs. Prior period. Compare this month to the same month one year prior (October 2021 vs. October 2020) or compare by year (2021 Year-to-Date vs. 2020 Year-to-Date).
- Current period vs. Current period forecast.This is known as a variance analysis. You compare what you think was going to occur during a particular period to what actually happened. This report can also be done either by month [October 2021 (actual) vs. October 2021 (forecast)] or by year [2021 Year-to-Date (actual) vs. 2021 Year-to-Date (forecast)]
- Use both absolute figure and percentages. Percentages allow you to quickly see the degree of change between the two periods that are being compared.
- Ask for help! Please call if you would like help creating or analyzing comparative financial statements for your business.