End-Of-The-Year Tax Tips for Small Businesses and Individuals

One of the most satisfying parts of my job is advising business owners and individuals on tax planning issues.

It is not uncommon for me to see first year business owners, or individuals who have recently gone through “major life events,” to be surprised at their tax bill come April 15. As such, I’d like to share with you some end-of-the-year tax tips so that you can minimize your tax bill and take action to respond to many of the tax law changes that have occurred this past year.

As has been the case in many recent years, the federal government made some big changes to the tax laws in 2013.  In particular, some of the more significant changes will impact higher-income earners, possibly raising their tax bills.  If you have a high income (generally, over $200K for individuals and $250K for married filing jointly), be prepared for a higher tax bill this year due to the following changes:

  • A new tax bracket of 39.6% for top earners.

  • A new net investment tax of 3.8%.

  • A Medicare surtax of .9%.

Even if you are one of the unlucky businesses or individuals to suffer a greater tax bill due to these changes, it is not too late to reduce your taxable income for 2013.  Some of the easiest ways for lowering your taxable income (and thus your tax bill) include:

  • Contributing to a retirement plan such as a traditional IRA, SEP IRA, Simple IRA, or employer-sponsored plan.

  • Paying medical and/or business expenses, and making large business purchases, in 2013 rather than 2014.

  • Donating more to charitable organizations.

Most of us are well aware that there have been some big changes in the laws dealing with health insurance.  Starting January 1, 2014, most people will be required to obtain health insurance, and many businesses will be required to provide it to their employees.  With respect to these new requirements, some things you should be aware of include:  

  • If your company pays for health insurance for its employees, your company may qualify for a tax credit of up to 50% of the cost of health insurance. In fact, if you are your business’s sole employee, your business may be able to qualify for this credit (to pay your health insurance), depending on how your business is organized. 

  • If you pay for health insurance as an individual, you also may qualify for a tax deduction or credit for a portion of the premium.

We should all ensure that we are receiving the best tax and financial advice available.  Tax laws grow more complex each year, and individuals and business owners should take full advantage of every legal avenue to reduce their tax liability.  One way to make sure you are getting the best advice is to check your tax preparer’s and financial planner’s credentials.

  • Many people are surprised to find out that no education or licensing requirements exist for tax preparers. You should check with your tax preparer to ensure he or she is trained, experienced, and comfortable with the type of tax return you need. Choosing a credentialed tax preparer will ensure professionalism, ethics, and competency. Enrolled Agents (EA) are “America’s Tax Experts,” federally licensed by the IRS to specialize in taxation and represent taxpayers before the IRS. CPAs and tax attorneys also have unlimited rights to practice before the IRS, but they may or may not specialize in taxation. For more information on EAs, see http://www.irs.gov/Tax-Professionals/Enrolled-Agents/Enrolled-Agent-Information

  • The Certified Financial Planner (CFP®) designation is considered the gold standard by which to judge personal finance professionals. Only financial planners who have fulfilled the certification and renewal requirements of the CFP Board can display the CFP® certification marks, which represent the highest level of competency, ethics and professionalism. Also, many financial planners earn their income through commissions they receive by selling financial products. If you desire truly objective financial planning advice, you should seek a fee-only Certified Financial PlannerTM Practitioner, who does not sell financial products and thus possesses no conflicts of interest when providing you advice. For more information on CFP® s, see www.cfp.net.

Feel free to contact Carrie Houchins-Witt if you have any questions or comments!   Take some time to slow down and enjoy this holiday season; and a have a happy, healthy, and prosperous new year!