Benjamin Franklin once said, “Failing to plan is planning to fail.” Those words are still true today, especially when it comes to your financial future.
What are your financial goals for the next ten years, or for retirement? What are you doing to decrease your tax burden now? The answers to these questions require more than figures and forms. They require a comprehensive, strategic approach to tax and estate planning. Whether you’re an individual, head of household, or business owner, the choices you make regarding your taxes can make (or cost) you money.
At Moskowitz LLP, we look at each client’s tax and financial picture both in detail and through a wide-angle lens. Our accountants and attorneys are here to advise and support you. They’ll show you how your tax picture has changed over time, and help you make informed choices for the future. Whether you’re looking for ways to reduce your tax obligation, incorporating under a new status, or managing the assets of an estate, we’re here to help.
Table of Contents:
Tax Planning versus Tax Preparation
“I already have someone who does my taxes. Why do I need more?” It’s a commonly heard concern. But what might not be obvious is the difference between a tax preparer and a tax planner. It’s tempting to think about taxes only when they come due, and then it becomes a race to assemble documents, crunch the numbers, and file your return before the deadline. A tax preparer can assist with those things, and reduce your stress level. But what about the larger picture?
A tax planner looks at your complete financial landscape–your business, your investments, your history—helping you make choices that reflect your long-term financial goals. Essential business tax planning services include…
- Compliance with IRS Rules and Regulations: Compliance issues can be tricky, rules do change, and being out of compliance can mean costly fees and penalties. A skilled tax planner can help you stay compliant, offer critical guidance on how IRS rule changes affect you financially, and suggest actions to improve your position.
- Corporate Restructuring: Are you incorporating for the first time? Or maybe you’re restructuring from an LLC to a corporation? The laws and tax regulations for each entity are complex, so why go it alone? A tax planner can assist you through the transition, complete needed documentation, and ensure that your business is poised for growth.
- Tax Credits: There are a wide variety of federal and state tax credits available to businesses and individuals. For example, if you’re filing for a business with multiple workers, you may be able to avail yourself of tax credits under the Affordable Care Act. If your workers lost significant days to COVID-19, a tax planner can tell you if you qualify and assist in claiming the Employee Retention Credit. This is in addition to other tax credits such as Research and Development tax credits which cover a wide range of business activities.
- Key Performance Indicators (KPIs): How do you measure business success? Units sold? New clients acquired? Reduced supply costs? By looking at KPIs for your business, a tax planner can help identify the over- and under-performing aspects of your organization, giving you the facts you need to make informed, strategic choices.
- Tax-Loss Harvesting: Did you know that your underperforming investments can actually save you money? By strategically selling weak investments at the right time, you may be able to reduce your tax obligation significantly. A skilled tax planner can help you understand the process and the rules.
- Estate Planning: Choosing what will happen to your assets after you’re gone can be daunting. A skilled estate planner can help you prepare now—recording assets and debts, establishing legal trusts for beneficiaries, setting up living trusts, and more.
Let’s examine each of these areas in greater detail.
Tax laws change over time, creating new challenges and potential pitfalls. Staying on top of every change to the tax code, while also managing the daily operations of your business, can be daunting. A skilled tax planner can assess your company’s current position and ensure that you remain compliant with all current rules and regulations.
Being caught out of compliance can also be costly. Why risk losing thousands in fees and penalties? A skilled tax team can help. They’ll assess your company’s current state of compliance, advise you of any changes required to bring you into compliance, and help you stay out of hot water with the IRS.
Corporate Compliance Issues
At Moskowitz LLP, our team of trained accountants and skilled tax attorneys stand ready to assist you with tax planning, reporting, and compliance issues. Here are some of the services we offer:
- Accounting method review and tax planning
- Audit and appeal representation
- Business entity selection and structuring
- Related tax advice for purchase or sale of a business
- Evaluation and qualification for tax credits and incentives
- Transactional structuring
Nonprofit Compliance Issues
Tax-exempt businesses have their own special array of tax challenges. If you run a nonprofit and are struggling with your taxes, the Moskowitz team can help. Our tax specialists are familiar with tax-exempt organizations information returns, unrelated business income tax preparation and research, Form 1023 applications, and formation of tax-exempt organizations.
Personal Compliance Issues
At Moskowitz, we provide tax guidance to individuals as well as pass through entities and corporations. When you become a client, our team examines your complete tax picture, highlighting the ways tax law changes affect your bottom line, so you pay the minimum tax due. We can assist with…
- Innovative and effective tax planning and consulting
- Professional representation before taxing authorities
- Estate planning
- Employee benefits
- Tax Preparation
- Up-to-the-minute tax compliance services
When you established your business, you likely selected a corporate structure that best served your fledgeling business. But is that structure still the most advantageous, now that your business has grown? Staying with an outdated corporate structure can cost you money in taxes. As part of your tax planning, we assess your current position and determine whether corporate restructuring could reduce your tax burden.
When it comes to structuring your business for tax purposes, you have several options. Pass-through entities (such as Limited Liability Companies [LLCs] and S-corps) offer a broader array of options than traditional C-corp structures.
S-corps and LLCs don’t pay federal corporate taxes. Instead, the profit from the business “passes through” to the owners who pay the tax. Alternatively, C-corps pay tax at the corporate level, and then again when the owner draws money from the business. To avoid double taxation, C-corps are left with a single response: to adjust owner compensation at the end of the year based on projected profit.
Pass-through entities, on the other hand, offer a broader range of options that allow you to look at how you are taking income and adjust it for a more advantageous tax position. A tax planner can help identify the optimal business structure for your business, demonstrate its tax advantages, and assist with the paperwork required to make the change.
A tax credit is money that taxpayers can deduct directly from the taxes they owe. A tax credit is not a percentage—it holds the same value for each taxpayer who claims it. So for example, a family earning $100k and a family earning $50k can each take advantage of a $5k tax credit, if they qualify. Because the credit represents a dollar-for-dollar reduction in tax obligation, each family will see a $5k reduction in their federal tax burden.
Most tax credits are nonrefundable, meaning that a tax credit may not reduce your tax burden to a number below zero. This means that lower income families may not be able to avail themselves of all available tax credits, as doing so would reduce their tax burden to a negative number.
Unlike personal tax credits (such as a child tax credit), business tax credits are intended to spur business activity and growth, often in a specific area. To put it another way, if a tax credit exists, it means that the federal government is rewarding a certain action or program.
Tax Credits versus Tax Deductions
It’s not uncommon to experience confusion between tax credits and tax deductions, but the difference is worth noting. While a tax credit represents a dollar-for-dollar reduction in tax obligation, tax deductions reduce a filer’s taxable income, thus reducing the filer’s tax liability. Or more simply, a deduction reduces the gross income to be taxed, while a credit directly reduces your tax burden.
Types of Tax Credits
- Nonrefundable Tax Credits: A nonrefundable tax credit cannot bring your tax owed to a number below zero, which would effectively mean that the IRS owes you money. Unfortunately, you won’t be getting a check from the IRS.
- Refundable Tax Credits: A refundable tax credit is paid out in full, regardless of the taxpayer’s liability. An example is the Earned Income Tax Credit (EITC). A taxpayer who qualifies will receive the full credit amount, regardless of income or tax liability. Another example is the premium tax credit, which allows filers to receive credit for the amount paid in healthcare premiums purchased in the insurance marketplace.
- Partially Refundable Tax Credits: Some credits are considered partially refundable, meaning that if you can avail yourself of only part of the credit, you may take the rest in cash. An example is the American Opportunity Tax Credit (AOTC). Also, in 2018, the child tax credit was made refundable up to $1400 per child.
Common Business Tax Credits
If you operate your own business, tax credits can vastly reduce your tax obligation. Here are some commonly used business tax credits you should get to know:
- Credit for Small Business Health Insurance Premiums: Part of the Affordable Care Act, this tax credit is available to businesses with fewer than 25 employees and an average worker salary under $55k. To qualify, companies must pay at least half of their employees’ insurance premiums and must have purchased health insurance through the Small Business Health Options Program Marketplace.
- Employer Credit for Paid Family and Medical Leave: Designed to give family members paid leave to care for a neonate or an ill family member, the family and medical leave tax credit equals 12.5% of the wages paid to qualifying employees on family and medical leave during the tax year. The credit maxes out at 25% of wages for businesses that cover a worker’s salary in full during leave.
- Work Opportunity Credit: The work opportunity tax credit incentivizes employers to hire workers from marginalized groups, such as veterans, ex-felons, and the long-term unemployed.
- Disabled Access Credit: To encourage businesses to remove barriers that would hinder disabled workers, the federal government offers a tax credit aimed at deferring capital improvement costs for wheelchair ramps, curb access ramps, elevators, or other improvements that aid the disabled.
ERC and R&D Tax Credits
Other credits allow business owners and employers to achieve substantial reductions in their tax burden. The Employee Retention Credit, for example, is a part of the Affordable Care Act that rewards employers who successfully retain workers. Your business may be eligible to deduct up to $26,000 per worker if you qualify. A Moskowitz LLP tax professional can help you determine your eligibility, gather the necessary materials, and ensure that your paperwork is error-free!
The Research and Development (R&D) Credit has been on the books since 1981 and was made permanent in 2015. It encourages business innovation by offering a deduction of up to $250,000 per year for expenses related to research and development. Let one of our tax specialists review your R&D spending—we may be able to save you thousands on your return. Planning future R&D efforts? Let us help ensure that the timing of your investments optimizes your tax savings.
Common Personal Tax Credits
When it comes to personal tax credits, the Earned Income Credit is the most popular, with 17.7% of filers claiming the credit. Other popular personal tax credits include:
- The Child Tax Credit: 14.4%
- Additional Child Tax Credit: 12.0%
- Nonrefundable Education Credits: 5.7%
- Refundable American Opportunity Credit: 5.3%
- Retirement Savings Contributions Credit: 5.7%
- Foreign Tax Credit: 5.7%
- Child Care Credit: 0.3%
- General Business Credit: 0.1%
- Elderly/Disabled Credit: 0.1%
A tax planning specialist can determine if you qualify for any money-saving credits, and assist in filing the paperwork needed to claim them.
Key Performance Indicators
Tracking your company’s growth is a great way to spot minor troubles before they become major headaches. But which metrics are most informative? Do you measure your company’s success by new contracts signed, increased investment in equipment, or number of new hires?
The metrics you use should provide useful timely information that helps you assess where your company stands and where it’s heading. So how do you select a robust and effective set of key performance indicators (KPI) for your company? Ask yourself these 5 simple questions.
- Is the KPI specific?
- Does it accurately measure progress?
- Does it focus on achievable goals?
- Does it use benchmarks to gauge progress?
- Does it address a specific time frame?
A good KPI will reflect your company’s story and while setting clear goals for the future. And a robust set of KPIs will help you see how various departments and teams interact, promoting increased efficiency and highlighting any pain points in interdepartmental coordination.
A robust KPI should be reflective of your company’s plans and goals, should be shared with stakeholders, and should be updated to reflect any substantive changes in the dynamics of your construction business.
A skilled tax planning strategist can use these KPIs to identify underperforming areas within your business, identify factors hindering growth, anticipate emerging trends that could affect your profitability, and make informed decisions about expansion, capital investments, etc.
Whether you invest in stocks, precious metals, or cryptocurrency, you’re required to report any annual profit you’ve made on those investments to the IRS. But the tax rate on those gains is not fixed but instead depends on how long you’ve held the asset. Short-term capital gains (assets purchased and sold within one year) are taxed like any yearly income (at 2022 rates, that’s 36%). Long-term capital gains (on assets held for more than a year) are taxed at a lower rate (typically 15% but sometimes as little as 5%). Long-term assets are items like real estate, undeveloped land, or securities.
So what happens if you’ve had a good year, even a great one, but cashing out your best performing stock before the next bear market would put you in a high-tax-liability position? Tax-loss harvesting is a strategy used by investors to leverage weaker investments to offset large gains. Also called “loss selling,” tax-loss harvesting allows you to sell weak investments at a loss and claim a credit against profits earned through winning investments.
Investing in today’s markets involves risk, and there are important rules that can affect your investments. For example, the Wash-Sale rule states that an investor may not repurchase a stock for 30 days after the sale date. This rule was created to prevent investors from selling assets to gain a tax advantage, then immediately repurchasing those same assets. A skilled tax specialist, like those here at Moskowitz LLP, can help you understand the rules and regulations, then work with you to create a strategic plan for selling-off underperforming assets.
If you’re invested heavily in cryptocurrency and want to use strategic tax-loss harvesting, there are a few things to know. First, crypto investors can take advantage of tax-loss harvesting as stock investors do. And with crypto, the Wash-Sale rule does not apply. A skilled tax professional can help you understand the tax advantages available to crypto investors and how to make them work for you.
Estate planning is a multifaceted discipline that encompasses property, business, contracts, tax, and many other areas of the law. It can help you avoid probate, minimize or eliminate estate taxes, and provide instructions on how to manage your affairs during your incapacity and settle matters and control your estate, even after your death. The estate planning and tax attorneys at Moskowitz LLP can help you develop a new estate plan or work with you to modify an existing estate plan.
Basic Estate Planning
Basic estate planning documents include either a simple will or a pour-over will with a revocable living trust, durable power of attorney for asset management, and advance health care directive (living will plus health care power of attorney) for healthcare decision-making in the event of your incapacity, to make sure that your wishes are respected.
There are additional estate planning considerations for non-U.S. citizens and their spouses, including the use of a qualified domestic trust (QDOT) to defer the harsh tax treatment often given to non-US citizens.
If you have children, you should also consider the benefits of a minor’s trust or special needs trust, to ensure that your children’s inheritance is properly managed and their assets protected.
Advanced Estate Planning
If the total value of your assets exceeds the estate tax exemption amount, you should explore the tax-saving benefits of a Marital Trust and Credit Shelter Trust, IRA Distribution Planning, as well as the possibility of incorporating an Irrevocable Life Insurance Trust, Charitable Trust, Family Limited Partnership and/or LLC into your estate plan.
Individuals with extensive property or business interests can benefit from Conservation Easements, Family Business Continuation Plans, “estate freezing” techniques, and our Wealth Management Services. An individual with business interests may also protect their assets from future creditors by establishing a Foreign Trust.
We work closely with executors, administrators, guardians, and trustees, helping them carry out their responsibilities in accordance with the law and the testator’s wishes. Our tax law and accounting teams advise the firm’s clients on how to properly distribute estate assets through probate proceedings or trust administration and ensure the most tax-efficient accounting and valuation of estate assets for purposes of the final income tax return and estate tax return preparation.
Estate Tax Audits and Litigation
Since estate and gift tax returns are all individually reviewed, the likelihood of an audit is much higher than that of individual income tax returns. Our experienced attorneys routinely handle all types of tax audits and have litigated many estates, gift, and generation-skipping tax positions opposed by the IRS before the U.S. Tax Court, U.S. District Court, and U.S. Courts of Appeals.
Creating a comprehensive tax strategy demands expertise and dedication. It also requires the ability to evaluate your tax picture from many perspectives at once. At Moskowitz LLP, we’ll work with you to reduce your tax burden, ensure you’re in compliance with all IRS rules and regulations, guide you through the process of applying for tax credits, and highlight ways that your investment strategy could reduce your tax obligation. Our accountants and tax attorneys are ready to help you face any tax challenge with confidence.
Why go it alone? Let the tax attorneys, accountants and enrolled agents at Moskowitz LLP help. Contact us today!