How to Plan Tax Planning Opportunities in 2020

As we near the last quarter of the year, it is smart to switch on the power mindset of a trader and focus on tax planning. Coming up with an effective blueprint will be a great help in protecting your finances from spending unnecessary tax expenses and also lowering tax liability. This is not as complicated as you may think. The earlier you start planning, the more tax opportunities will be available for you.

Here are some tips to help you out:

1. Adjust tax withholding

The tax reform will affect the amount of tax that will be withheld from your paycheck. It is important that your withholding is accurate so you can avoid waiting for that big year-end refund and enjoy your hard-earned money.

2. Have a flex plan

With a flex plan, you can enjoy pre-tax money that you diverted from your paycheck. When it is time to use the money, you also don’t have to pay taxes for it. It is important to note, though, that there is a risk of plan forfeiture if you don’t use the money before the year ends.

3. Contribute to an IRA or a 401K

The earlier you start your contributions to an IRA or a 401K, the more time your investments will have to grow tax-deferred income and gains. So, it is best to prioritize this as soon as you start earning income. Your contributions will result to thousands of dollars in tax savings in the future.

4. Contribute to an HSA plan

Typically, health savings accounts are tied to high-deductible insurance plan. Individual health coverage can take about $3,450 contributions, while family coverage can put $6,850. These can be deducted on your taxes, plus investment income or gains are tax-free if the money is used for healthcare expenses, giving you extra savings.

5. Sell losing investments

If your investments have not been earning money for a long time, it is time to let them go and sell them. Using the strategy called tax loss harvesting, you will be able to offset capital gains with your winning investments. This will result in freeing up your capital, which will give you the opportunity to make new investments.

6. Get the best structure for your business

With the changes made by tax reform, many businesses were affected. Entities got a 20% standard deduction on business income and corporate tax was cut from 35% to 21%. To save you from unnecessary tax payments, it is ideal to hire a tax planner or advisor to plan the ideal structure for your business.

7. Consider diverting some investments to your kids

If you belong in a high tax bracket, this could have you paying expensive taxes for your investments. An effective strategy is by diverting some of those to your children. Because kids can have up to $1,050 tax free and the next taxed at a lower child’s rate, you can save money. The new tax reform laws also allows children a 10% rate on additional $2,550 of income.

8. Pay your children

If you have a child that’s 17 and over, you can pay them up to $12,000 yearly to take advantage of the tax exemption. This will be considered tax-free income for your child but also a deduction for your business.

These are just some of the most common strategies you can apply to your tax planning this year. There a lot more that you can learn with our tax advisors. Schedule a consultation and learn how to increase tax savings, lower tax liability and effectively grow your wealth.