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11 / 25 / 2017 by Greg Freyman, CPA in General, News & Press

How to Succeed in Any Business – Part 3

“You must pay taxes. But there’s no law that says you gotta leave a tip.”
~ Morgan Stanley advertisement

To catch up to part three, see parts 1 and 2 on how to succeed in any business.

We have covered many a topic since we embarked on our journey as to how to succeed in any business.

We went over penny pinching, budgeting, and so on. We obviously know that as a business owner, there are many variables that will ultimately spell your success story – there is marketing, being great at what you do and letting it show, simply being polite to your patrons.

Success is not any one thing or action you need to do, it is a combination of sorts that will get you where you want to be.

We do know for sure that if you do want to succeed in any business, not so obvious is the maneuvering of complicated tax laws. We do not expect for you to be well versed in the tax code, leave that to the professionals; however, we do need for you to be informed, to ask questions of your tax team, and to try to leave no stone unturned.

It is the well informed that get ahead.

That being said, let’s discuss tax planning strategies, and how they can help you as an individual or as a business owner.

Using Differences in Tax Rates to Your Advantage

Tax Planning OpportunitiesSince tax planning is a vast and very specific discussion, let’s cover the three basic concepts of tax planning:

Know when you are in the Alternative Minimum Tax (AMT) category

So you think you can deduct as much as possible, and you have accelerated all those deductions this year, only to later find out that they did you absolutely no good whatsoever? That is correct, the AMT is designed to ensure that you pay at least a minimum tax, as the name implies, so be careful when planning to not overlook this common trap for the unwary.

Also note that there is a credit for the AMT in the year following the year you were exposed to this tax; hence, the AMT can be considered a planning opportunity, don’t overlook this credit.

Understanding Income

Tax PlanningGross Income is considered income from whatever source derived, unless specifically excluded by the tax code. Be sure to check if your income is specifically excluded, partially excluded, or excluded on different levels of taxation.

A common trap for many is the Social Security benefits, as they can be taxed at 0%, 50%, or 85% of the face value distribute to you in any given year – and the amount that will be ultimately taxable really depends on your other income.

You should make sure that you plan for any changes in your income levels, or you may find yourself with an unexpected tax bill one year.

States generally exclude retirement income from taxation of residents that have moved to a new state of residency. Be careful when moving to a new state as each state has different rules and regulations on how they tax retirement income. Retirement income is very broad and can include different retirement vehicles that would be treated quite differently when comparing state to state and circumstance to circumstance. For example, one state can tax Social Security benefits, while another would not, another state can exclude $20,000 of specific retirement income regardless of your gross income and another may exclude specific retirement income until your gross income is below $100,000.

Shifting Income – Moving Money From One Pocket To The Next

Shift income from one year to another, or move the income to a family member in a lower tax bracket. This is not always as straight forward as it sounds as there are many ways this can go wrong, please make sure this is something you consult with your tax advisor on.

Decelerating Income – The Basics

This would involve advanced strategies such as delaying collections on your receivables, or perhaps negotiating for a deferred compensation package with your employer. Year-end bonuses can be paid in the following year for the past year, this would help those attempting to delay their income, and for the employer, this would delay additional expenses related to employee compensation. It could be a win win, depending on your particular circumstances.

Other planning strategies to postpone income:

Recognizing Income Sooner Rather Than Later – What You Need To Know

Time to Save MoneyYou might ask yourself, why would anyone wish to accelerate income?

It is a good idea to accelerate income if you are in a lower tax bracket this year, and you anticipate you will be in a higher tax bracket the following year.

Tips on how to accelerate income:

Do you have any questions or comments? Feel free to reach out to us to discuss your specific situation. We are always here to help you.

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