Top Tax Planning Strategies For An Individual In Florence, SC!
Updated: Oct 28, 2022
Your clients require more tax planning and assistance than ever before, especially as they cope with new tax legislation resulting from the COVID-19 problem. Here are some important tax planning strategies that might help them save money on taxes and improve cash flow in 2022.
Adjust Your Tax Withholding Or Anticipated Payments If Necessary.
You may wish to update Form W-4 if your customer owes taxes for 2019. Consider utilizing the IRS's "Tax Withholding Estimator" to assist you. In addition, if you make anticipated tax payments during the year (for example, if you're self-employed), review your tax status for 2020 to ensure you're not underpaying or overpaying.
Plans For Retirement
If any client is affected by COVID-19 infection and needs additional cash, the CARES Act has numerous tax-friendly provisions for retirement plan withdrawals of up to $100,000 done before 2022. So if they have money in a regular IRA and have been thinking about changing it to a Roth IRA, 2022 might be the year to do it.
Amended Returns
Ordinarily, an updated tax return is only submitted when a mistake or omission has been detected on a previously filed return. With the current COVID-19 issue, every chance to put money back in your client's wallet is worthwhile. The cost of updating a prior year's return may be justified if major business tax planning services implemented within the recent year have retroactive provisions.
Enjoy The Benefit Of Low Tax Rate On Investment Income
The income from a long-term investment is normally taxed at a lower rate than short-term investments. For the most part, these rates are 0%, 15%, and 20% for most investments. Your taxable income determines the rate that applies. If feasible, your customer should have an income that is low enough to qualify for the 0% rate. If your income is quite high to take advantage of the 0% rate, consider giving mutual fund shares to your children, grandkids, or other loved ones. These persons are likely to fall into the 0% or 15% capital gains tax brackets.
If your customer and their loved one eventually sell the investments, any profit will be taxed at the reduced rates as long as they possess them for more than a year. However, be aware of the "Kiddie Tax," which applies to all children under 18 and most full-time students aged 18 or 19–23. Therefore, it may limit the number of people who can benefit from this method.
Know Tuition Tax Credits And Loan Interest Deductions
The IRS highlights the distinctions between its AOTC and LLC education credit programmes for students and their parents:
The AOTC includes credits for course-related books, materials, and equipment that students need but that institutions do not cover. In contrast, the LLC solely covers tuition, fees, and other approved education expenditures.
The AOTC is only good for four years; however, the LLC may be utilized for as long as you like.
The modified adjusted gross income (MAGI) ceiling for the AOTC is $80,000 for single filers and $160,000 for married filers.
The MAGI limit for LLCs is $68,000 for single filers and $136,000 for joint filers.
The maximum amount of deduction for student loan interest is the lesser of $2,500 or the actual amount of interest paid during the year. As a person's MAGI hits the yearly maximum for the filing status, the deduction amount declines and eventually disappears. The deduction gets claimed as an adjustment to income; therefore, it is not necessary to have important tax planning strategies to qualify.