Tax Saving Tip #1: Review Retirement Plan Options

As a business owner, proper use of qualified plans can significantly lower your taxable income as well as offer a great way to attract and keep top talent. There are many different types of qualified retirement plans and each of them has their own set of benefits and potential drawbacks.

If you currently have a qualified retirement plan, there are ways that you can optimize your contributions before the end of 2022 that could help increase deductions and reduce taxes on your business or personal income. We would suggest doing a review of your plan before the end of the year and discussing with your financial and tax advisors what specific things are best for your situation.

If you don’t currently have a qualified plan, there are many options available that could allow you to put away significant dollars for retirement and at the same time have a large positive impact on your taxable income for 2022. There are even some retirement plans that you can create and fund up to the tax filing deadline! We suggest that you have that conversation with your tax advisors now so you can act before time runs out.

Tax Saving Tip #3: Selectively Time Your Business Income and Deductions

As they say, “Timing is everything.” As you forecast your income, if you estimate it will be higher this year, there are things you can do — even at year-end — to reduce your taxable business income.

One of those things is to accelerate your deductible expenses. If there are purchases you need to make soon, you may benefit from making those purchases before the end of the year, even if they are charged on credit card. For large purchases, some assets even have accelerated depreciation schedules that would allow you to deduct up to the entire purchase in one year.

This strategy works for ordinary expenses as well. Paying as many expenses as you have, even prepaying those you may incur in the coming months can add deductions for this year. The same goes for any deductible contributions that you plan to make.

Timing your income can also help to reduce your realized income for the year and consequently reduce taxes owed. If you can, you may benefit from deferring invoicing some clients on larger projects until the beginning of the new year and save that income for 2023.

If, however, you are forecasting higher income next year, you can switch gears and focus on accelerating income and holding off on deductible expenses to maximize them in a year when you need it more. The goal is to use the timing to your best advantage.

As with all of these strategies, check with your tax advisors right away to see what you can do before the end of the year. If you have questions that are specific to your family’s situation, feel free to contact us, and we will do what we can to help.