Inheritance tax planning and tax-free gifts
Find out how to give away money from your estate to reduce your inheritance tax bill, and what is a ‘potentially exempt transfer’
Can I give money away to avoid inheritance tax? If you’re estate is worth more than $325,000 (or $650,000 for married couples and civil partners), it’s likely some of it will pass to HMRC in inheritance tax when you pass away.
One of the most straightforward ways to make sure tax isn’t charged unnecessarily is to consider giving away assets while you are still alive. You’re allowed to make some gifts without any tax being due after your death. These usually include gifts to your spouse or civil partner, or if you’d like to leave money to a charity. Most of the time it also includes gifts to individuals made more than seven years before your death.
Gifts to your family or other individuals If you wish to leave money to other family members, such as your children, it’s a good idea to plan how you want to do this.
Gifts that benefit you You can’t gift someone something that you will still maintain a benefit from in your lifetime and benefit from the gifting rules.
Tax-efficient accounts and investing methods to help make you a smarter tax planner
Preparing for tax time
Organizing your tax information early may help you lessen your tax-season stress.
Tax-efficient investing
Tax rules and rates may change, but it’s always a good idea to keep taxes in mind when making investment decisions.
Retirement investments and taxes
Understanding tax-advantaged investment strategies for retirement—and when to withdraw your funds—may help you build your investments and lower your tax bill.
Tax-savvy college savings plans
Discover how 529 college plans may help you save money for higher education expenses and potentially benefit from tax advantages
Estate planning and inheritances
An estate plan may help you minimize gift and estate taxes and preserve more of your assets for those you care about.
Tax Avoidance Is Legal; Tax Evasion Is Criminal
Individuals and business owners often have more than one way to complete a taxable transaction. Tax planning evaluates various tax options to determine how to conduct business and personal transactions in order to reduce or eliminate your tax liability.
Although they sound similar “tax avoidance” and “tax evasion” are radically different. Tax avoidance lowers your tax bill by structuring your transactions so that you reap the largest tax benefits. Tax avoidance is completely legal—and extremely wise.
Tax evasion, on the other hand, is an attempt to reduce your tax liability by deceit, subterfuge, or concealment. Tax evasion is a crime
How do you know when shrewd planning—tax avoidance—goes too far and crosses the line to become illegal tax evasion? Often the distinction turns upon whether actions were taken with fraudulent intent
Business owners often find themselves subject to more scrutiny than wage-earners with a similar level of income. Why? Because a business owner has more options to avoid tax, both legally and illegals
Adding Things Up Some Year-end Tax Planning Tips for Your Medical Practice
Thanksgiving is almost upon us and the holiday season is just around the corner. What better time than now to think about year-end tax planning for your practice, as well as yourself?
Annual Bonuses
There is no better way to show your appreciation toward employees for all of their hard work than a bonus at the holidays. Not only will it help to improve morale and keep them working hard into the New Year, but, if paid out before Dec. 31, it is a deductible expense and lowers your taxable income.
In terms of your own bonus, there are more items that should be considered. If you are an entity whereby the tax is paid at the individual level, a year-end bonus has no impact on taxes paid. Here, the consideration should be on the cash needs of the practice and owner.
Retirement Plan Contributions
Retirement-plan contributions are one of the most valuable tax -saving techniques that you can utilize. By making such a contribution, practices are able to reduce current taxes, while the individuals are able to defer taxes until they retire and take distributions. Another nice feature is that, except for employee deferrals, you have 2 1/2 months after year end to fund the contribution.
Medical and Office Equipment
For those practices that may have a few pieces of outdated equipment, or if there is that new machine you have been eyeing for some time, now may be the perfect time to make that purchase. The recently passed Small Business Jobs Act of 2010 contains some great provisions relative to the purchase of new medical and office equipment.
Tax Planning
Tax planning involves conceiving of and implementing various strategies in order to minimize the amount of taxes paid for a given period. For a small business, minimizing the tax liability can provide more money for expenses, investment, or growth. In this way, tax planning can be a source of working capital. Two basic rules apply to tax planning. First, a small business should never incur additional expenses only to gain a tax deduction. While purchasing necessary equipment prior to the end of the tax year can be a valuable tax planning strategy, making unnecessary purchases is not recommended. Second, a small business should always attempt to defer taxes when possible. Deferring taxes enables the business to use that money interest-free, and sometimes even earn interest on it, until the next time taxes are due.
Experts recommend that entrepreneurs and small business owners conduct formal tax planning sessions in the middle of each tax year. This approach will give them time to apply their strategies to the current year as well as allow them to get a jump on the following year. It is important for small business owners to maintain a personal awareness of tax planning issues in order to save money. Even if they employ a professional bookkeeper or accountant, small business owners should keep careful tabs on their own tax preparation in order to take advantage of all possible opportunities for deductions and tax savings. Whether or not an entrepreneur enlists the aid of an outside expert, he or she should understand the basic provisions of the tax code.
GENERAL AREAS OF TAX PLANNING
There are several general areas of tax planning that apply to all sorts of small businesses. These areas include the choice of accounting and inventory-valuation methods, the timing of equipment purchases, the spreading of business income among family members, and the selection of tax-favored benefit plans and investments.
Accounting Methods Accounting methods refer to the basic rules and guidelines under which businesses keep their financial records and prepare their financial reports. There are two main accounting methods used for recordkeeping: the cash basis and the accrual basis. Small business owners must decide which method to use depending on the legal form of the business, its sales volume, whether it extends credit to customers, and the tax requirements set forth by the Internal Revenue Service (IRS). The choice of accounting method is an issue in tax planning, as it can affect the amount of taxes owed by a small business in a given year.
Accounting records prepared using the cash basis recognize income and expenses according to real-time cash flow. Income is recorded upon receipt of funds, rather than based upon when it is actually earned, and expenses are recorded as they are paid, rather than as they are actually incurred. Under this accounting method, therefore, it is possible to defer taxable income by delaying billing so that payment is not received in the current year. Likewise, it is possible to accelerate expenses by paying them as soon as the bills are received, in advance of the due date. The cash method is simpler than the accrual method, it provides a more accurate picture of cash flow, and income is not subject to taxation until the money is actually received.