Like all business owners, digital marketers are subject to filing taxes. Filing and remitting taxes can be a daunting process, that takes time and careful consideration. Accuracy and timeliness are crucial to avoid unnecessary penalties from the IRS . In addition, reducing their tax bill is a huge priority to most taxpayers. Did you know that through careful tax planning you can significantly lower you tax bill?
7 Tax Planning Tips Digital Marketers Need To Know
Tax planning is all about reducing your tax liability. There are a lot of things taxpayers can do throughout the year to place them in an advantageous tax position.
1 – To Itemize or Not to Itemize That is the Question?
Recent changes to the tax code have raised the standard deduction to $12,000 for individuals and $24,000 for married couples filing a joint return. There have also been new limits introduced on itemized deductions, including a $10,000 limit on property tax and state and local tax deductions. Most high income earners find it more advantageous to itemize, however with the recent changes you may want to talk to a tax planning consultant to see if itemizing makes sense for you and your business based on your individual needs.
2 – Changes in Income and Estimated Taxes
Self employed taxpayers like online sellers may be subject to estimated taxes. Estimated taxes represent the taxes an employer would have paid on behalf of an employee. Without and employer to remit these taxes Uncle Sam wants to collect income tax, social security, and medicare directly from the individual. This takes careful consideration and accurate prediction of future income. Working with a tax planning professional is the best way to make sure accurate payments are remitted and on time. In addition, accelerated payment of estimated taxes before December 31, could afford more deductions and lowering your taxable income. However, it could trigger the AMT, talk to a tax planning profession for clarity on this strategy.
3 – Fully Fund Retirement Savings Plan
Fully funding your 401 K or IRA has two benefits. For starters you increase your savings for retirement, and you also reduce your taxable income. The sooner you start contributing the sooner that money can grow and, contributions grow tax deferred. The maximum amount individuals are allowed to contribute to an IRA is $5,500 a year. If you are 50 years old and older you are allowed to contribute an additional $1,000 a year.
4 – Consider Converting Your IRA into a ROTH IRA
Converting a traditional IRA into a ROTH IRA may make financial sense for some. Conversions from a traditional IRA to a ROTH IRA are subject to taxes, however, if you have had a low or negative income year, you can offset business losses with little or no tax. In addition, disbursements from a ROTH IRA are not taxed as long as the account has been open for 5 years and you have reached age 59 ½. For some it may make sense to pay taxes on the money now as opposed to the time of withdrawal. Talk to a tax planning specialist to find out which strategy makes the most sense for you.
5 – Stock Losses and Capital Gains
The end of the year is the perfect time to dispose of under-performing investments to generate a loss. This helps offset your taxable gains. In addition, you are allowed to deduct $1,500 for individuals or $3,000 for married couples for losses. Any losses over the deductible amount can be carried over to the next year.
6 – Defer Income
Deferring income may make sense for some, because it lowers the current year’s taxable income. Self employed individuals like digital marketers, can delay invoicing and payments until late December in order the receive the income in January the following year. Of course this method does run its risk of pushing you into a higher tax bracket the next year. It is only advisable to utilize this strategy if your are anticipating be in the same tax bracket the following year.
7 – Charitable Donations
Charitable donations are deductible up to 60% up from 50% for taxpayers who choose to itemize. Appreciated stock donations are also a great tan planning option, as they offsets future capital gains tax liabilities.
Bonus Tax Planning Tips
Some other tax planning tips include:
- Family gifting – Family gifting is a great way to disperse inheritance to your family and avoid the estate tax. Individuals can gift up to $15,000 a year. Married couples up to $30,000 a year.
- Health funding – Both flex spending (FSA) and health saving (HSA) allow you to pay for medical expenses with pre-tax money. While HSA’s can grow tax deferred, FSA’s usually operate on an annual use or lose it basis.
- College funding – College savings plans known as 529 plans grow tax deferred and have state tax deductions in many states.
To learn more about tax planning and other tax related topics subscribe to our newsletter.
Hire A Small Business Tax Accountant?
More Articles Related to Tax Planning