While most people tune into taxes in March and April due to the annual deadline, tax planning is most effective when it is a year-round endeavor. Here are 20 of our CPA’s best tips to use throughout the year, to make the most of your tax return come tax time.
Gift Tax Exclusion
Currently, an individual can gift up to $18,000 per year to anyone through the annual Gift Tax Exclusion. The current lifetime exemption for individuals is $13.61 million to heirs free of federal gift/estate taxes; married couples can leave up to $27.22 million. These lifetime exemption amounts are scheduled to be cut in half starting in 2026 however, so plan ahead. You can review our previous article HERE for strategies to help you prepare.
Charitable Giving
With the higher standard deduction, you may benefit by “bunching” your charitable contributions together every other year. Also consider donating appreciated marketable securities held at least one year rather than selling those assets, which can allow you to deduct the full fair market value of the asset and avoid capital gains and Net Investment Income taxes. Or use a donor-advised fund to deposit assets into an account in a single year, thus maximizing the deduction, but spreading out distributions to charities over many years.
Explore Using Capital Loses to Offset Realized Gains
You may want to use tax loss harvesting in investment accounts. For example, you might sell marketable securities whose value is down in order to offset gains in other assets.
Should you itemize?
Have a conversation with your TFG CPA to find out before tax season starts if it would make sense for you to itemize tax deductions for this year. If so, you may be eligible for additional deductions including charitable contributions, mortgage interest, property taxes, or even a portion of medical expenses over a certain amount of your income.
Understand Adjusted Gross Income
AGI and tax rate are important factors in figuring taxes. AGI is the taxpayer’s income from all sources minus any adjustments. Generally, the higher a taxpayer’s AGI, the higher their tax rate and the more tax they pay. Tax planning can include making changes during the year that lower a taxpayer’s AGI. Some strategies for lowering your AGI include: contributing to a retirement account or an HSA, deduct any student loan interest you pay, as well as deducting qualifying business expenses if you are self-employed or own your business. These are only some of the many strategies, talk with your TFG CPA to learn more methods for lowering your AGI.
Hire your kids
Hiring your children can be a great way to help them understand what you do, and why you do it. Plus, they will begin to learn valuable life skills through work, and earn a pay check. Even better, by giving them real work, with a job description and wages, it could help you lower your overall tax liability.
If you follow IRS rules, you can lower your taxable income by deducting their wages and some benefits from your business income. Employed children do have to pay income taxes, regardless of their age, but each child’s income will be tax-free up to his or her standard deduction of $14,600 in 2024. Refer to our previous article HERE for more information on income tax for children.
If your children are under 18 and your small business is 100% family-owned (a sole proprietorship or a partnership between the kids’ parents), their wages won’t be subject to Social Security and Medicare (FICA) taxes. And if the kids are under 21, their wages won’t be subject to unemployment (FUTA) taxes. Of course, you’ll have to comply with all child labor and tax laws, which means solid bookkeeping is a must, as are appropriate work and wages.
Be Bold with your Logo
Putting your logo on the clothing you wear can be a good way to get your name out there — and get a tax break in the process. Anything with your logo on it (a cap, shirt, employee uniforms, etc.) could be considered an advertising or other deductible expense. Our TFG CPAs can help you classify expenses that include your logo.
Consider a Health Savings Account (HSA)
An HSA account is a great way to save for unexpected health expenses, and they have tax benefits. You will be able to deduct the money you deposit into the account on your tax return, and you can invest it, watching it grow tax free until you need it. If you take money from the HSA to pay for qualified medical expenses, the withdrawal is tax free. Meaning, money goes in and out of this account tax free unlike other retirement accounts. The IRS just raised the annual limit for HSA contributions from $4,150 in 2024 to $4,300 in 2025 for self only coverage. For family coverage, the HSA contribution limit will jump to $8,550 in 2025, up from $8,300 in 2024.
Mix Vacation travel with Business
You may be able to deduct some travel expenses from a vacation trip if you spend more than half of your time away doing business. This could mean attending a conference, meet with clients, conduct research, and so much more. If you ever have an opportunity to use this strategy, here are a few things to keep in mind.
You must have at least one overnight stay for it to qualify, and you should keep all of your expenses well documented. The IRS states that deductible expenses have to be ordinary, or typical, for your business while you are traveling, and they must be necessary to expand your business or increase profits. Meals and expenses for family members won’t be deductible unless these members are representing the company.
Make use of the “Hummer Deduction”
Section 179 of the tax code allows small businesses to deduct the full cost of a piece of eligible property during the first year it was put into service (instead of over the lifetime of the asset). This deduction can be used for many types of property, including machinery, office equipment and furniture, and any four-wheeled passenger vehicle weighing between 6,000 and 14,000 pounds. If you have a vehicle that you think may qualify for this deduction and you are using it for your business, check with our TFG Accountants, they can help you with this deduction.
Keep Records of Any Care You Provide
The Bureau of Labor says that over 37 million people in the U.S.A. are involved in eldercare. According to AARP, 78% of family caregivers report regular out-of-pocket costs related to caregiving in the home, with the average spent being over $7,000. The good news is, there is some light at the end of the tax year tunnel, and there are many tax deductions and credits that exist to help with these costs. Read our article HERE for information on the Child and Dependent Care Tax Credit as well as other tax strategies for family caregivers.
Make the Most of Employee Benefits
This may seem like a no-brainer, but maximize your 401(k) contributions. And if you get a bonus or expect extra commissions, consider putting it into your 401(k). 2024 Defined Contribution Plan Limits for 401(k) plans have risen slightly, the 2024 IRA contribution limit is $7000 for those under 50, and $8000 for those age 50 or over. Double check to see if your current health insurance plan is the most cost effective plan for you and if not, make a change at open enrollment. Be sure to shore up healthcare accounts like your FSA and HSA. Negotiate expenses. If you’re a dependable employee, chances are that your employer won’t want to lose you over the cost of a cell phone or mileage that’s no longer deductible for 2024. Consider asking your employer to pay lost expenses directly for you or boost your salary to make up the difference. These accounts have tax friendly qualities which can help your money grow and benefit you greatly later on in life.
Establish Your QBI
If you are a sole proprietor or a business owner whose entity is structured as a pass-through, consider the 20% deduction for Qualified Business Income established by tax reform. The good news is the new law brought the tax rate down to keep pace with the significant corporate tax cut, but the bad news is that figuring out the QBI is a bit complex for the non-accountant. You’ll need your CPA here!
Brush up on Changes in Home Related Tax Breaks
For 2024 the rules have remained the same regarding caps on mortgage interest deduction and eligibility for home equity debt interest deduction. In other words, think twice about the tax consequences of paying down debt with a home equity loan or buying a second home for vacations. The total deduction for all state and local taxes, including both property taxes and either income taxes or sales taxes, is capped at $10,000. Taxpayers who suffer storm or other damage may lose, so your homeowner’s insurance should probably be reviewed.
Tax Savings from R&D Credits
Tax planning can reduce business taxes, but there are additional savings opportunities. When it comes to research and development tax credits, certain costs related to wages, supplies and contract research are eligible, and can save you a great deal of money.
EV Tax Credit
If you are in the market for a new car this year, consider an electric vehicle. The Inflation Reduction Act in 2023 extended the $7,500 EV tax credit for 10 years, until December 2032. Starting this year, you now have the option to take the EV tax credit as a discount up front, at the time that you purchase the vehicle. This will lower the price of the vehicle by the amount of the credit, meaning you won’t need to wait until you file your return to benefit from the credit. For more information, read our previous article breaking down the credit HERE.
EV Chargers Credit
There is a tax credit available for installing electric vehicle recharging equipment at your home, in addition to the EV tax credit. The federal tax credit for EV chargers is worth 30% of the costs of the qualifying equipment, up to $1000.
Traveling for Charity?
If you are traveling as a volunteer for any charity work throughout the year, you may be able to deduct some of your expenses. Most importantly however, you must be traveling as a volunteer for a qualified charity. In addition your work has to be real and substantial throughout the trip. The types of expenses you may be able to deduct include:
- Air, rail and bus transportation
- Car expenses
- Lodging costs
- Cost of meals
- Taxi and other transportation costs between the airport or station and your hotel
Energy Improvements in Your Home
Looking to minimize expenses in the home? IRS rewards homeowners with an Energy Efficient Home Improvement Tax Credit of up to $3,200. You can claim the 30% credit (up to $1200) for certain eligible energy efficient improvements and energy property expenses made through 2032. Even a home energy audit for your main residence may qualify for a tax credit of up to $150.
To qualify, home improvements must meet energy efficiency standards. They must be new systems and materials. Labor costs don’t qualify. The maximum credit you can claim each year is:
- $1,200 for energy property costs and certain energy efficient home improvements, with limits on doors ($250 per door and $500 total), windows ($600) and home energy audits ($150)
- $2,000 per year for qualified electric or gas heat pumps, biomass stoves or biomass boilers
- Residential energy property qualifies for a credit up to $600 per item.
- Central air conditioners
- Natural gas, propane, or oil water heaters
- Natural gas, propane, or oil furnaces and hot water boilers
- Oil furnaces or hot water boilers can also qualify
- If you use your home partly for business, the credit for eligible clean energy expenses is as follows:
- Business use up to 20%: full credit
- Business use more than 20%: credit based on share of expenses allocable to nonbusiness use
The credit is nonrefundable, so you can’t get back more on the credit than you owe in taxes. You can’t apply any excess credit to future tax years. The credit has no lifetime dollar limit. You can claim the maximum annual credit every year that you make eligible improvements until 2033. File Form 5695, Residential Energy Credits Part II, with your tax return to claim the credit. You must claim the credit for the tax year when the property is installed, not merely purchased. Lots more info HERE.
Sales Tax Holidays
If you live in Florida, be sure to take advantage of sales tax holidays! These can save you a great deal of money on items to help you prepare for hurricane season, as well as back to school for your children.
Contact us: Our TFG CPAs are here for you at any time of the year, not just during tax season. Having a conversation this summer may help you to be better prepared for tax season, and could help you save money. Reach out to us toll free at 855-542-7537 or at CPA@fuoco.com.
