Maximizing Your Business Potential: Key Strategies for Effective Tax Planning and Consulting

Very few of us enjoy paying taxes, but doing so is our responsibility as Americans. However, that doesn’t mean that you shouldn’t do everything you can to minimize the amount of taxes that you pay. You are under no obligation to pay more than you owe. That said, many people pay more than they need to throughout the year, and that means that they lose out on opportunities to invest and save. Likewise, it is not uncommon for people to miss out on deductions that they could take and as a result, they end up owing money or getting a smaller refund than they are due.

The solution is to be meticulous about filing your taxes now by consulting with an accountant or tax attorney to make sure you are taking all of the deductions for which you qualify. However, paying attention now is only part of the battle. The rest is taking a proactive approach to planning for taxes in the future. With that in mind, here are some Tax planning tips from ScaleX CPA to help you minimize your tax burden when you get older.

Set up a Retirement Account

One decision that people tend to fret about is whether to invest in a traditional IRA or 401K or to choose a Roth IRA or 401K. The decision mostly hinges on whether you think your taxes are higher now than they will be in the future. Of course, that’s a difficult thing to predict. The primary difference between a traditional and a Roth account is that, with a traditional account, you invest pre-tax dollars today effectively deferring payment until you withdraw money.

By contrast, a Roth account requires you to invest after-tax money. In return, you don’t have to pay taxes when you withdraw money in the future. So if you had some reason to believe that your taxes would increase substantially over time, your best bet would be to choose a Roth investment account to minimize what you have to pay in the future.

It’s difficult to make any recommendation in this regard because so much of this decision depends upon your particular circumstances. If you’re relatively young and anticipate that your income will increase over time, then you may want to opt for the Roth IRA. Otherwise, a traditional IRA may allow you to defer payment until you are in a lower bracket.

Maximize Your 401K Contributions

If you want to reduce your tax burden right now, then you should strongly consider maxing out on your IRA contributions every year. Contributing the maximum allowable amount, which is $20,500, means that you can greatly reduce your tax bill in the present. Not only does the $20,500 you contribute work to reduce your taxable income, but it also ensures that you’ll have a nice sum of money when the time comes to retire.

The other benefit of contributing to your 401K is that, if your employer offers matching funds, you can get a 100% return on that portion of your contribution. It’s akin to getting free money every year, both in the form of matching funds and a reduced tax bill.

Long-Term Tax Bracket Planning

As stated previously, it can be virtually impossible to know which tax bracket you will be in when you retire. However, there are some things you can do to try to plan, anyway. Long-term tax bracket planning requires some knowledge of how to use a spreadsheet. If you’re willing to crunch the numbers, you can play around with some things to see which options offer you the biggest tax savings.