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Client Update Newsletter: November 2023
This month's newsletter outlines Social Security’s cost-of-living adjustment for 2024, plus some basic information on how Social Security works. And there is still time to take action to reduce this year's tax bill. Please review the tax planning articles to bring some ideas top of mind for yourself and your business.
With the holidays approaching now is a great time to review five great money saving tips plus there is a great article for anyone considering the use of bartering.
Please feel free to forward this newsletter to someone who may be interested in a topic and call with any questions you may have.
- Tax Planning: Now More Important Than Ever
- 2024 Social Security Changes
- Year-End Tax Planning Tips for Your Business
- Spend Less with These 5 Money Tips
Tax Planning: Now More Important Than Ever
Thankfully it’s not too late to try and minimize your taxes for 2023. If you haven’t scheduled a tax planning session, now is a great time to do so. Here's how a tax planning session can potentially help your situation:
- It can make a difference. This is especially true if you have a major event that occurs during the year. For example:
- Selling a house? You can avoid taxes if primary residence requirements are met.
- Starting a business? Choosing the correct entity can lower your taxes every year!
- Getting ready to retire? Properly balancing the different revenue streams (part-time wages, Social Security benefits, IRA distributions and more) has a huge impact on your tax liability.
Even in uneventful years, external forces like new tax laws can be managed if planned for in advance.
- Put yourself in control. Timing is important when it comes to minimizing taxes, and the timing is often in your control. For instance, bundling multiple years of charitable contributions into one year can create an opportunity to itemize deductions. Plus holding investments for longer than one year to get a lower tax rate, and making efficient retirement withdrawals are other examples of prudent tax strategies that you control.
- There are tax planning opportunities for every level of income, not just those at the top of the tax bracket. Tax deductions are available for student loan interest, IRA contributions and other situations even if you claim the standard deduction. Certain tax credits (called refundable credits) will increase your refund even if you don’t owe taxes. Missing any of these tax breaks can unnecessarily increase your taxes.
- The tax landscape is constantly changing. New tax laws are passed almost every year. New laws may mean new tax deductions you can take advantage of. It can also mean that an existing deduction you had been used to taking is no longer available. A tax planning session can help you understand what deductions are and are not available for your particular situation.
- You have help. Tax planning comes down to looking for ways to reduce taxable income, delay a tax bill, increase tax deductions, and take advantage of all available tax credits. The best place to start is to bolster your level of tax knowledge by picking up the phone and asking for assistance.
Year-End Tax Planning Tips for Your Business
As 2023 winds down, here are some ideas to help you prepare for filing your upcoming tax return:
- Informational returns. Identify all vendors who require a 1099-MISC and a 1099-NEC. Obtain tax identification numbers (TINs) for each of these vendors if you have not already done so.
- Shifting income and expenses. Consider accelerating income, or deferring earnings, based on profit projections.
- Be prepared to receive a Form 1099-K. You may receive a Form 1099-K from each payment processor from whom you receive $600 or more in payments. In addition to credit card companies and banks, payment processors can include Amazon, Etsy, PayPal, Venmo and Apple Pay. You'll need to include the 1099-K on your tax return.
- Categorize income and expenses. The best way to prepare for receiving a 1099-K is to organize your records by major categories of income, expenses and fixed asset purchases. If your accounting records are accurate, then any tax form, including a 1099-K, should be easy to tie out to your books.
- Separation of expenses. Review business accounts to ensure personal expenses are not present. Reimburse the business for any expenses discovered during this review.
- Create expense reports. Having expense reports with supporting invoices and business credit card statements with corresponding invoices will help substantiate your deductions in the event of an audit.
- Fixed asset planning. Section 179 or bonus depreciation expensing versus traditional depreciation is a great planning tool. If using Section 179, the qualified assets must be placed in service prior to year-end.
- Leveraging business meals. Business meals with clients or customers are 50% deductible. Retain the necessary receipts and documentation that note when the meal took place, who attended and the business purpose on each receipt.
- Charitable opportunities. Consider any last-minute deductible charitable giving including long-term capital gain stocks.
- Cell phone record review. Review your telephone records for qualified business use. While expensing a single landline out of a home office can be difficult to deduct, cell phone use can be documented and deducted for business purposes.
- Inventory review. Review your inventory for proper counts and remove obsolete or worthless products. Keep track of the obsolete and worthless amounts for a potential deduction.
- Review your receivables. Focus on collection activities and review your uncollectible accounts for possible write-offs.
- Review your estimated tax payments. Recap your year-to-date estimated tax payments and compare them to your forecast of full year earnings. Then make your 2023 4th quarter estimated tax payment by January 16, 2024.
Spend Less with These 5 Money Tips
Government data shows that record inflation from the last few years started to slow down throughout 2023, but much of the damage has already been done. Every bill we pay and purchase we make costs more now, from insurance to clothing, and groceries to household supplies. Here are some tips to spend less to help offset the effect from these now permanently higher prices.
- Pay down high-interest debt. You can start spending less money today by paying down high-interest debt. Data from the Federal Reserve shows people who don't pay off their credit card balance each month pay an average interest rate of 22.16%. For a monthly credit card payment of $75, this interest expense costs you $17 a month, or just over $200 a year.
- Revisit your subscriptions. Write down how many monthly subscriptions you're paying for, then add up the monthly cost. Then ask yourself the following questions: Can you do without some of these subscriptions? Can you cut the cost of some of these subscriptions? Are there some with overlapping benefits? Maybe you'll discover a subscription you completely forgot about. You don't have to cancel all of them, but getting rid of just a few can help you spend less each month.
- Shop around for insurance. Loyalty to an insurance company doesn't always pay off. Consider shopping around and comparing rates for homeowners’, auto, & umbrella insurance, along with other insurance coverage you may have.
- Eat at home. Limit how often you dine out or stop for take-out. Your wallet will thank you! According to data from the Bureau of Labor Statistics, overall food spending was up 12.7% in 2022, partly driven by a 20% increase in food spending away from home.
- Start using a budget. Finally, spend less by creating a written monthly budget and sticking to it. Find a budgeting app that you like the look and feel of, then create a budget within that app to help you decide how much to spend each month in various categories. Once the budget has been created, be sure to keep it updated throughout the month, instead of waiting until the last week to get it up-to-date.
The cost of everything may have skyrocketed, but you still have at least some control over where your money goes each month. Consider these steps to cut your spending, and you may be surprised at how much you save.