Is Tax Planning Seasonal or Year-Round?
While certain strategies may align with seasonal opportunities, Silver Tax Group offers tax planning as a year-round service. Tax laws and financial circumstances change throughout the year, and staying proactive ensures you’re always optimizing your tax position.
Our service focuses on analyzing your current financial information – including income, expenses, balance sheets, and profit and loss reports – to provide actionable recommendations that save you money right now. While we also consider future years, our primary goal is to deliver immediate tax savings.
How Silver Tax Group Calculates Tax Savings
Our year-round tax planning services are data-driven and customized for each client. We analyze your financials and utilize proven tax-saving strategies. Whether you’re a small business owner, high-income earner, or investor, we create tailored plans to maximize your savings. For transparency, we provide detailed savings calculations to demonstrate the tangible benefits of implementing our strategies.
16 Proven Tax Planning Ideas
1. Defined Benefit Plan Contributions
Savings: High-income earners can defer significant amounts of income into retirement plans, reducing taxable income and saving potentially between $20,000 and $250,000 annually. These plans are particularly effective for business owners with steady profits who want to save aggressively for retirement while minimizing current taxes.
Details: Contributions are tax-deductible for the employer, and the earnings grow tax-deferred. Defined benefit plans allow for much higher contributions compared to other retirement plans, making them ideal for individuals nearing retirement who want to maximize their savings quickly.
Example 1: A business owner earning $400,000 contributes $200,000 to a defined benefit plan, reducing taxable income to $200,000, potentially saving $80,000 in federal taxes at a 40% tax rate.
| Taxable Income Before Contribution | Contribution Amount | Taxable Income After Contribution | Tax Savings |
|---|---|---|---|
| $400,000 | $200,000 | $200,000 | $80,000 |
Example 2: A professional corporation with steady profits contributes $150,000 for its owner-employee and $50,000 for additional employees into a defined benefit plan. The corporation reduces its taxable income by $200,000, saving $60,000 in taxes at a 30% tax rate.
| Contribution for Owner | Contribution for Employees | Total Contribution | Tax Rate | Tax Savings |
|---|---|---|---|---|
| $150,000 | $50,000 | $200,000 | 30% | $60,000 |
2. Corporate Restructuring to Optimize Tax Strategies for Your Business
Savings: Choosing the right business structure can save 15-25% on self-employment taxes and optimize deductions for qualified business income (QBI).
Details: Silver Tax Group specializes in helping businesses restructure to maximize tax efficiency. For example, S Corps can help business owners avoid paying self-employment tax on the distribution portion of their income, while C Corps can be beneficial for retaining earnings within the company. We are experienced in consulting with you and filing the proper Form 2553 with the IRS to make an S Corp election for your current LLC. The S Corp election has a look-back period of three years, meaning you can amend up to three years of returns to take advantage of the S Corp election and potentially recover some of the self-employment taxes you paid.
Example: A sole proprietor earning $120,000 restructures as an S Corp and pays themselves a reasonable salary of $60,000. The remaining $60,000 is a distribution, avoiding self-employment tax on that amount.
| Business Income | Salary | Distribution | Self-Employment Tax Savings |
|---|---|---|---|
| $120,000 | $60,000 | $60,000 | $9,180 |
3. Accelerated Depreciation and Section 179 Deduction
Savings: Deduct up to 100% of qualified asset purchases in the current year using bonus depreciation or Section 179.
Details: This strategy is particularly useful for businesses investing in equipment, machinery, or vehicles, allowing them to reduce taxable income significantly in the year of purchase.
Example 1: A business purchases $50,000 worth of machinery and takes the full deduction under bonus depreciation, reducing taxable income by the same amount.
| Equipment Cost | Depreciation Taken | Reduction in Taxable Income | Estimated Tax Savings |
|---|---|---|---|
| $50,000 | $50,000 | $50,000 | $15,000 |
Example 2: A small business invests $100,000 in new vehicles eligible for Section 179. The entire amount is deducted in the year of purchase, saving $30,000 in taxes at a 30% tax rate.
| Vehicle Cost | Section 179 Deduction | Tax Rate | Tax Savings |
|---|---|---|---|
| $100,000 | $100,000 | 30% | $30,000 |
4. Roth IRA Contributions for Children
Savings: By contributing to a Roth IRA based on a child’s earned income, parents can establish tax-free growth for their child’s retirement.
Details: Contributions grow tax-free, and withdrawals for qualified expenses are tax-free as well, providing long-term benefits.
Example: A 16-year-old earns $5,000 in a summer job. Parents contribute $5,000 to a Roth IRA, which grows to $100,000 over 40 years at a 7% annual return.
| Initial Contribution | Annual Growth Rate | Time (Years) | Future Value |
|---|---|---|---|
| $5,000 | 7% | 40 | $100,000 |
5. Donor-Advised Funds (DAFs)
Savings: DAFs allow taxpayers to bundle charitable donations into a single year to exceed the standard deduction and maximize tax savings.
Details: Taxpayers can retain control over the timing and recipients of the donations while receiving an immediate tax deduction in the year the fund is established.
Example: A taxpayer with $10,000 in annual charitable donations bundles three years’ worth into one year, contributing $30,000 to a DAF. This raises their total itemized deductions above the standard deduction threshold, allowing them to claim a higher deduction.
| Annual Charitable Giving | Contribution to DAF | Total Itemized Deductions | Tax Savings Over Standard Deduction |
|---|---|---|---|
| $10,000/year | $30,000 (Year 1) | $30,000 | $7,000 |
6. Tax-Loss Harvesting
Savings: Offset capital gains with losses to minimize investment-related taxes.
Details: Any unused losses can be carried forward to future years or used to offset up to $3,000 of ordinary income annually.
Example: A taxpayer sells underperforming investments with $15,000 in losses to offset $15,000 in capital gains, avoiding taxes on the gains.
| Capital Gains | Capital Losses Realized | Net Taxable Gains | Tax Savings |
|---|---|---|---|
| $15,000 | $15,000 | $0 | $3,750 |
7. Section 199A Deduction Optimization
Savings: Pass-through entities can claim up to 20% of qualified business income as a deduction, reducing taxable income.
Details: Careful planning around wages paid and taxable income thresholds is essential to maximize this deduction.
Example: A small business owner with $200,000 in qualified business income claims a $40,000 deduction under Section 199A.
| Qualified Business Income | Section 199A Deduction | Taxable Income Reduction | Tax Savings |
|---|---|---|---|
| $200,000 | $40,000 | $40,000 | $9,600 |
8. Tax Scenario Before S Corporation Conversion (LLC)
- All net income from the LLC was subject to self-employment tax.
- Self-employment tax rate: 15.3% (Social Security and Medicare combined).
- Limited opportunity to differentiate between wages and distributions.
Calculation:
- Net Income: $1,000,000 (Gross Revenue – Expenses)
- Self-Employment Tax: $1,000,000 x 15.3% = $153,000
- Total Tax Liability (excluding income tax): $153,000
9. Tax Scenario After S Corporation Conversion
Key Strategies Implemented:
- Reasonable compensation model set at $200,000 for Chad Silver.
- Distributions on remaining profits are not subject to self-employment tax.
- Consideration of Social Security strategy to maximize future benefits.
Calculation:
- Reasonable Salary: $200,000 (subject to Social Security and Medicare taxes at 15.3%).
- Social Security Cap (2023): $160,200 x 12.4% = $19,854
- Medicare: $200,000 x 2.9% = $5,800
- Total Payroll Taxes on Salary: $19,854 + $5,800 = $25,654
- Distributions: $800,000 (Net Income – Salary, not subject to self-employment tax).
- Total Tax Liability (excluding income tax): $25,654
Savings:
- Pre-Conversion Tax: $153,000
- Post-Conversion Tax: $25,654
- Total Savings: $127,346
10. Consideration of Social Security Strategy
Reasonable Compensation Rationale:
- The salary of $200,000 is designed to:
- Stay above the Social Security cap ($160,200 for 2023).
- Ensure maximum Social Security benefits are accrued.
- Balancing distributions ensures compliance with IRS reasonable compensation rules while minimizing tax liability.
Social Security Benefit Maximization:
By paying a salary above the cap, Chad Silver ensures full contributions to Social Security, which will increase future retirement benefits. This dual approach of salary and distributions is both tax-efficient and retirement-focused.
11. Year-End Bonuses or Deferred Compensation
Savings: Shifting income into a lower-tax year or deferring it to retirement accounts can reduce taxable income significantly.
Details: Bonuses or compensation deferred into retirement accounts like 401(k)s or IRAs can lower taxable income while securing future benefits. This strategy works well for high-income earners who want to optimize their tax burden while preparing for retirement.
Example: A high-income taxpayer defers a $20,000 year-end bonus into their 401(k), reducing taxable income in the current year and saving $7,000 at a 35% tax rate.
| Bonus Amount | Deferred to 401(k) | Tax Rate | Tax Savings |
|---|---|---|---|
| $20,000 | $20,000 | 35% | $7,000 |
12. Energy Efficiency Credits
Savings: Installing energy-efficient upgrades to your home or business can result in significant tax credits, reducing your overall tax liability.
Details: Taxpayers can claim credits for improvements such as solar panels, geothermal heat pumps, and energy-efficient windows. Businesses may also qualify for energy-efficient building deductions.
Example: A homeowner installs $20,000 worth of solar panels, qualifying for a 30% federal tax credit. They receive a $6,000 credit on their taxes.
| Upgrade Cost | Credit Percentage | Tax Credit |
|---|---|---|
| $20,000 | 30% | $6,000 |
13. Income Splitting with Family Members
Savings: Shifting income to family members in lower tax brackets reduces the overall tax burden for the family unit.
Details: By hiring family members in a business, you can shift taxable income to them, which may fall into a lower tax bracket, and deduct their wages as a business expense.
Example: A business owner employs their 18-year-old child, paying them $12,000 for part-time work. The child, in a lower tax bracket, pays minimal taxes on the income, while the business deducts $12,000 as an expense.
| Employee (Child) Income | Parent Tax Rate | Deduction | Tax Savings |
|---|---|---|---|
| $12,000 | 32% | $12,000 | $3,840 |
14. Cost Segregation Studies
Savings: Accelerating depreciation on components of commercial properties reduces taxable income in the early years of property ownership.
Details: Cost segregation identifies components of a building that can be depreciated over shorter periods, such as 5, 7, or 15 years, rather than the standard 27.5 or 39 years.
Example: A business purchases a building for $1 million. A cost segregation study identifies $200,000 of assets that can be depreciated over 5 years, resulting in $40,000 in additional depreciation annually.
| Total Property Cost | Segregated Assets | Annual Depreciation | Tax Savings (at 30%) |
|---|---|---|---|
| $1,000,000 | $200,000 | $40,000 | $12,000 |
15. Real Estate Portfolio Optimization
Savings: Strategically managing real estate investments, including commercial and residential properties, can maximize tax benefits and reduce liability.
Details: Silver Tax Group provides consultation on depreciation strategies, 1031 exchanges, and leveraging passive losses to offset other income. Real estate investments often allow for significant tax advantages through deductions and deferrals.
Example: An investor exchanges a $500,000 property for another through a 1031 exchange, deferring $100,000 in capital gains taxes.
| Property Value | Capital Gain | 1031 Exchange Deferred Tax |
|---|---|---|
| $500,000 | $100,000 | $100,000 |
16. 14-Day Home Rental Rule (“Augusta Rule”)
Savings: Rent your personal residence for up to 14 days annually and exclude the income from your taxable income.
Details: This strategy is particularly effective for homeowners who rent their homes for special events or short-term stays. The income is tax-free, and no deductions are required.
Example: A homeowner rents their home for 10 days during a major event, earning $5,000 tax-free.
| Rental Days | Rental Income Per Day | Total Income | Taxable Income |
|---|---|---|---|
| 10 | $500 | $5,000 | $0 |
Free Consultation 24/7
Chad Silver
Attorney
Silver Tax Group Locations
561-933-6717
West Palm Beach, FL Law Office
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