Planning Beyond Tax Filing
Tax minimization is the process of assessing and reducing an individual’s or business’ tax liability through careful planning. With the ever-changing tax code, it’s important to determine what does and does not apply to your specific tax situation. At ARR & Co, we use a holistic and strategic approach to align your finances with your desired short- and long-term goals.
Are you worried about overpaying or underpaying your taxes? Either way, you want to be efficient in estimating your tax liabilities. With ARR & Co, we help you with more than filing your tax returns. Throughout the year, we’ll work together to accurately track your financial picture and project your tax liabilities to prevent unpleasant or avoidable surprises come tax time.
Personal Tax Minimization
When it comes to your personal tax returns and minimizing the amount of federal and state taxes paid, there are many variables to consider:
- Life events, such as the birth of a child, marriage, divorce, college, retirement, starting a new business venture or other milestone
- Gift giving to loved ones and charities
- Retirement planning with pre-tax income to achieve long-term savings strategies
We’ll help you find the right balance between tax minimization strategies and financial goal achievement.
Business Tax Minimization
When it comes to reducing your business’ tax liability, you have a multitude of options. Things to consider:
- Switching the type of business entity (e.g., from sole proprietorship to S-Corporation)
- Equipment purchases and timing
- Employee benefits and retirement plans
- CARES Act (COVID-19 related) employer credits
- Purchase of vehicles used for business operations
Tax Minimization Strategies
Every personal and business situation is unique. Therefore, finding the right tax minimization strategies really depends on how your finances are structured and your overall goals. Any recommendations are preceded by several in depth meetings and analyses. Examples of tax minimization strategies are:
Income Deferral
Also known as deferred income or deferred revenue, income deferral can reduce current tax liability. ARR & Co’s approach is to first consider your retirement plan options and other tax-preferenced accounts. To find the right solution for your situation — such as age, personal or business options — we’ll determine the trade off between being taxed now or later. There are many ways to defer income, such as:
- Roth vs. Traditional IRAs
- 401(k) vs. SEP (Simplified Employee Pension Plan) vs. Simple IRA
- Health Savings Accounts
- 529 Education IRAs
Income Spreading
For individuals or businesses with cyclical or volatile income streams, income spreading is a tax strategy to reduce the overall marginal tax rate paid on large sums of income. Our approach is to explore how to manage your tax brackets, avoiding a bump into a higher bracket in a single year. We’ll discuss net operating losses (such as carryovers and carrybacks) and potential installment sales for large capital gain transactions.
Tax Credit Planning
Unlike deductions or exemptions which reduce the amount of taxes paid, tax credits reduce the actual amount of tax owed. Our approach is to consider tax credits available for purchases in the current year, as well as explore employer tax credits, solar credits and electric-vehicle credits.
Capital Assets & Investments
Capital improvements such as equipment purchases, real property investments, or saving in long-term accounts with tax benefits, can be a part of an effective tax minimization strategy. We help clients with:
- 1031 tax free exchange for real property
- Harvesting capital losses in a portfolio
- Tax-free investments such as municipal funds and bonds
- Stock option sales strategies to take advantage of favorable capital gains rates
Year-End Planning
The key to tax minimization is to begin planning before it’s too late to make course corrections that affect your personal and business’ tax-year liabilities. The first step is to understand your financial situation, how your business operates and is structured, and your short- and long-term goals. We’ll begin with an introductory meeting and discuss your tax minimization options.
