Income tax guides plus companies? The sooner you meet with your preparer, the sooner you should be able to complete your return (even if you decide to file for an extension, as discussed later). If you anticipate a refund, you’ll get that sooner, too. If you wait too long to schedule an appointment with a tax preparer, it might not happen before April 15, and you could miss out on opportunities to lower your tax bill, such as making deductible contributions to an IRA or a health savings account.3? 4? Note: for 2020, the deadlines for making these contributions and for filing taxes is July 15.
Why Change the Character of Your Income? One way to reduce your tax burden is to change the character of your income. If you’re wondering why you should do so, here are some of the ways it can help you to lower your tax bill. Convert your SIMPLE, SEP, or traditional IRA to a Roth IRA. If you are over the age of 591/2 and you meet the five-year rule, Roth distributions are tax free. Because they are not considered investment income, they will not increase your modified adjusted gross income (MAGI), which is used to calculate the 3.8% Medicare surtax.
The Tax Cuts and Jobs Act (TCJA) created the Qualified Business Income (QBI) deduction when the law went into effect in 2018. You might be able to deduct 20% from your qualifying business income if your business is a pass-through entity—a sole proprietorship, an S corporation, or a partnership, passing its income and deductions down to its shareholders, partners, or owners to report on their personal returns. This deduction is in addition to claiming your ordinary business expense deductions. You should qualify if your taxable income is below $157,500, or $315,000 if you’re married and filing a joint return. Special rules apply if you earn more than these amounts, so you might still qualify depending on the nature of your business. Find additional details at https://greentree.tax/best-bookkeeping-service-in-houston-texas/.
Slow Down to Save Taxes. If you buy a house or condo, fix it up and then sell it in less than a year, you’ll pay taxes on the profit at ordinary income tax rates (10%, 12%, 22%, 24%, 32%, or 35%) based on your income. Hold it for more than a year and you’ll be taxed at the lower long-term capital gains rates (0%, 15%, or 20%), depending on your income. You may decide it is worth it to you to flip the property quickly, but if you get caught in a slower market and can’t unload it quickly, you’ll save a lot on your taxes by holding it more than a year.