This article gives a list of currently available tax strategies in Intuit Tax Advisor
Augusta rule - tax free rental income
The Augusta rule allows a taxpayer to receive tax free rental income received on qualifying property, if the property was rented for less than 15 days.
Backdoor Roth Individual Retirement Account (IRA)
Individuals that are not able to make deductible IRA contributions may consider making non-deductible IRA contributions, then rolling the IRA over to a Roth IRA. The contribution to the Roth IRA, while not deductible in the current year, allows future income and distributions to be tax-free. While Roth IRA contributions are subject to adjusted gross income limitations, conversion of an IRA to a Roth IRA are not. The amount of the contribution to all IRAs are limited to $6,000 per year, $7,000 if the taxpayer is 50 or over.
Bonus depreciation
A taxpayer can elect to expense all or part of the cost of certain qualifying property by deducting it in the year it is placed in service.
Bunching itemized deductions
Many of your everyday expenses can be itemized as deductions on your income tax return to save money at tax time. However, unless you have a large amount of qualifying expenses, you might be better off taking the standard deduction. Since you can decide every year whether you want to itemize or not, careful planning can help you maximize your deductions in years you itemize.
Business Use of Home
A taxpayer may deduct the business use of their residence. In order to qualify, the use must be incurred because of the taxpayer’s business and the residence must be used exclusively and regularly as the taxpayer’s place of business.
Capital gain timing
Planning long-term dispositions while considering the maximum taxable income applicable to the zero and fifteen percent capital gains rates can help minimize taxation.
Charitable donation of appreciated stocks
Charitable giving can be one of the most fulfilling parts of having wealth. Taxpayers can maximize their philanthropic impact by donating appreciated stocks to a qualified charity and will also maximize their tax savings by exempting the stock appreciation from the capital gains tax (up to 15% or 20% tax rate). In addition, they will be able to deduct the full fair market value of the gift from their income taxes if itemized, up to the IRS-permitted limits (30% AGI).
Child Tax Credit
The Child Tax Credit can significantly reduce your tax bill. If the Child Tax Credit is close to being limited by modified adjusted gross income, it may be beneficial to adjust the timing of income or expenses to maximize the credit. If a child is turning 17 next year, the Child Tax Credit will no longer be allowed, so it may be necessary to adjust withholding or estimates.
Combine business and personal travel
You may be able to combine business and personal travel and still deduct certain trip expenses. To qualify, a domestic trip must be primarily for business purposes. You should assess all the time and activities on your trip and whether the majority were related to business. You can’t deduct expenses for any trips that were primarily personal. If you travel outside the U.S., you’ll also have to allocate your expenses between business and personal costs in proportion to the number of days you spent on non-business activities.
Cost Segregation Study
A cost segregation study is a report created by engineering and/or accounting specialists to identify and reclassify personal property assets that are part of real property for the purpose of shortening depreciation time and improving cash flow.
Day trader status
You may qualify for trader tax status, which allows you to treat trading expenses as ordinary and necessary business expenses. To qualify, you must meet requirements for trade volume and frequency, holding period, account size, and hours spent trading. You can also make a mark-to-market election to shift your capital gains or losses to ordinary income. Under the election, the wash sale rule and the $3,000 capital loss limitations won’t apply.
Dependent care reimbursement
A dependent care reimbursement plan is a pre-tax benefit account used to pay for eligible dependent care services, such as preschool, summer day camp, before or after school programs, and child or adult daycare. It's a smart, simple way to save money while taking care of your loved ones so that you can continue to work. With a Dependent Care FSA, you use pre-tax dollars to pay qualified out-of-pocket dependent care expenses. The money you contribute to a Dependent Care FSA is not subject to payroll taxes, so you end up paying less in taxes and taking home more of your paycheck.
Donor advised fund to time contributions
Donor advised funds offer donors the opportunity to obtain a deduction for a contribution to a public charity without having to commit to a particular charitable recipient.
Employee (EE) accountable reimbursement plan
An accountable reimbursement plan lets employees get paid back for certain job-related expenses and lowers the business’s and employee’s taxes. These plans are advantageous because employers can deduct many expenses that employees can’t, like uniforms, mobile phone costs, and per diems. Payments made under an accountable reimbursement plan are excluded from the employee's gross income and aren’t reported on Form W-2. By reimbursing expenses and lowering wages, the employer and employee can both save on payroll taxes. Using an accountable reimbursement plan also lowers the employer’s taxable income by the deductible amount of expenses incurred.
Employer (ER) accountable reimbursement plan
An accountable reimbursement plan lets employees get paid back for certain job-related expenses and lowers the business’s and employee’s taxes. These plans are advantageous because employers can deduct many expenses that employees can’t, like uniforms, mobile phone costs, and per diems. Payments made under an accountable reimbursement plan are excluded from the employee's gross income and aren’t reported on Form W-2. By reimbursing expenses and lowering wages, the employer and employee can both save payroll taxes. Using an accountable reimbursement plan also lowers the employer’s taxable income by the deductible amount of expenses incurred.
Gift stock to children for tuition
Taxpayers in higher income tax brackets should consider gifting appreciated stock to children, up to the annual gift exclusion can shift income to children to pay for college tuition
Health care Flexible Spending Account (FSA)
Health care flexible spending accounts are tax-advantaged accounts that let you set aside money on a pre-tax basis to pay for qualified medical expenses. The money set aside can be used to pay deductibles, copayments, coinsurance, and other medical expenses.
Health Savings Account (HSA)
Health savings accounts are tax-advantaged accounts that let you set aside money on a pre-tax basis to pay for qualified medical expenses. The money set aside can be used to pay deductibles, copayments, coinsurance, and other medical expenses.
Hire your kids
Parents who employ their child in a closely held business can lower their business income, reduce their income taxes, and allow their children to earn their own income. Revenue rulings and case law have established that the business can deduct wage payments made to the child as long as they are a bona fide employee, their compensation is reasonable, and they actually render services to the business.
Hire your spouse
Both the taxpayer and spouse must have earned income in order to take the Child and Dependent Care Credit. Taxpayers with a business can hire their spouse as an employee to qualify for the Child and Dependent Care Credit, which covers dependent care expenses. The spouse’s work must be directly related to the business activity . Don’t count personal activities like mowing the lawn or taking out the garbage as work.)
Individual Retirement Account Qualified Charitable Distributions (IRA-QCDs)
Taxpayers who are 70 1/2 years old and older who don’t need income from their IRA can lower their AGI using qualified charitable distribution (QCD) strategy to efficiently disperse money to a charity of their choice while satisfying the required minimum distribution amounts set by the IRS (72 years old or 70 1/2 years old before December 31, 2019). A qualified charitable distribution (QCD), is a direct transfer of funds from your IRA custodian to a qualified charity that allows you to exclude the amount from taxable income. QCDs can count toward satisfying your required minimum distributions for the year as long as certain rules are met.
Like-kind exchange
You can exchange certain real property for another property that’s the same type, or “like-kind,” without recognizing a taxable gain for the transaction. To qualify for a like-kind exchange, the real property you give up must be used for business or held for investment, and the property you receive must be of a similar nature and character. Properties can still be like-kind if they differ in quality, like an apartment building that hasn’t been updated and an apartment building that was recently remodeled. If you receive any money or other property that’s not like-kind in the exchange, you’ll recognize a gain only for the non like-kind assets.
Medical Expense Reimbursement Plan (MERP)
Medical Expense Reimbursement Plan (MERP) is any plan or arrangement where an organization reimburses employees for out-of-pocket medical expenses incurred by employees or their dependents. If administered correctly, all reimbursements are paid to the employee 100% tax-free.
Mega Backdoor Roth conversion
Individuals who can’t contribute to a Roth IRA may be able to make an after tax contribution to their 401(k) and roll it into a Roth IRA or Roth 401(k). To use this strategy, make after tax contributions to the 401(k) plan, then take an in-service distribution of the amount you contributed, and immediately roll that amount into a Roth IRA. While not deductible in the current year, converting to a Roth IRA allows future income and distributions to be tax-free. The total of all 401(k) contributions for the year - pre-tax, after tax, and employer matching - can’t exceed $61,000 (or $67,500 if you’re over 50). This strategy will only be effective if your 401(k) allows after tax contributions and in-service withdrawals or transfers.
Optimize QBI
Qualified business income deduction optimization strategy will generate whenever there is an activity with qualified business income, and the taxable income on the return causes the QBI deduction to be limited on IRS Form 8995-A. This strategy will allow you to modify two items on the return that impact the deductibility of QBI deduction on the return, wage expenses and/or unadjusted basis in qualified property immediately after acquisition (UBIA). The strategy will show the recalculated QBI deduction, as well as the impact of increasing the wage expenses to income and SE tax liabilities.
Pre-tax health insurance
Health insurance premiums paid may be deductible for people with self-employment income who aren’t eligible to receive insurance through an employer (or their spouse’s employer). The premiums paid can be taken as an adjustment to income and lower taxable income, even when taking the standard deduction.
QBI Deduction
The qualified business income deduction strategy will generate an insight whenever there is an activity with qualified business income, and the taxable income on the return causes the QBI deduction to be limited on IRS Form 8995-A. This strategy will show you the limited QBI deduction amount, and the maximum potential QBI deduction. As you add strategies to the plan that reduce taxable income, the recomputed QBI deduction will be shown in this strategy.
Real Estate Professional
If you qualify as a real estate professional, you can deduct losses from real estate activities against ordinary income. Your real estate professional status will also help determine whether this income is subject to net investment income tax.
Research and Development (R&D) Credit
The Research and Development credit provides much needed cash to hire employees, invest in facilities, increases research and development, and more. Qualifying small businesses can apply up to $250,000 of your research credit against your payroll tax liability.
Residential Energy Credit
Taxpayers may be able to take advantage of the Residential Energy Credit which provides an incentive for purchasing alternative energy products and equipment for their home. The allowable credit is up to 30% of an unlimited amount of costs you incur to purchase and install solar electric systems, geothermal heat pumps, solar hot water heaters, wind turbines and fuel cell property. For the 2023 tax year the amount of the allowable credit will change to 30%.
Roth IRA contribution
Contributions to a Roth IRA allow for tax free retirement distributions. Additionally, these contributions will allow the taxpayer to avoid Required Minimum Distributions and designating heirs as beneficiaries within the IRA allows the heirs choose a longer timeline for the distribution of the funds thereby delaying tax implications.
Roth IRA conversion
Converting a Traditional IRA to a Roth IRA will allow the taxpayer to avoid tax on IRA distributions upon retirement offset by the tax due upon conversion. Additionally, the conversion will allow the taxpayer to avoid Required Minimum Distributions and designating heirs as beneficiaries within the IRA allows the heirs to choose a longer timeline for the distribution of the funds thereby delaying tax implications.
S Corp compensation analysis
A taxpayer that made an S Corporation election in a prior year still reaps tax savings benefits in subsequent years. It is prudent to conduct a routine review of the S Corporation qualifications and reasonable compensation of the shareholder employee.
S Corporation choice of entity
The projected S Corporation net earnings are sheltered from self-employment tax, which would be paid if self-employed. The corporate structure provides the owner limited liability protection so personal assets are shielded from claims of business creditors. The business income, tax deductions, credits, and losses are passed through to the owner, rather than taxed at the corporate level.
Section 179 expense
A taxpayer can elect to expense all or part of the cost of certain qualifying property by deducting it in the year it is placed in service.
Simplified Employee Pension Individual Retirement Plan (SEP-IRA)
A Simplified Employee Pension (SEP) plan allows self-employed individuals, business owners, employers, and those earning freelance income to contribute toward their employees’ retirement as well as their own retirement. Contributions are made into an Individual Retirement Account (IRA) that is set up for each plan participant.
Solo 401(k) contributions
If you own and run your business alone, or if only you and your spouse work in the business, you can save for retirement with a Solo 401(k). A Solo 401(k) is like a regular 401(k) plan that many employers offer. If your business grows and you eventually hire employees, the Solo 401(k) simply converts to a regular, employer 401(k) plan.
Startup Expense
A taxpayer can elect to deduct up to $5,000 of startup expenses in the tax year in which it has begun operations.
Student loan payments made by employer (ER)
Under the Coronavirus Aid, Relief, and Economic Security Act (CARES), employers can reimburse or make student loan payments on behalf of their employees on a tax-free basis (up to $5,250 annually) under an education assistance program. This means the loan payments would be excluded from the employee’s income. The provision is applicable on loan payments made from the day the bill was signed into law (March 27, 2020) through 2025.
Tax loss harvesting (short-term)
Tax loss harvesting allows taxpayers to sell some investments at a loss to offset their short-term capital gains to lower their taxes and rebalance their portfolios with the proceeds received. To claim the capital loss, the investments have to be sold before the calendar year ends. The proceeds from these investments sold at a loss can then be reinvested to rebalance their portfolio. Investments to consider for disposition should include stocks in a losing position, stocks not subject to wash sales rules, and/or crypto/virtual currencies.
Tax loss harvesting (long-term)
Tax loss harvesting allows taxpayers to sell some long-term investments at a loss to offset their capital gains to lower their taxes and rebalance their portfolios with the proceeds received. To claim the capital loss, the investments have to be sold before the calendar year ends. The proceeds from these investments sold at a loss can then be reinvested to rebalance their portfolio.
Third-party independent installment sale
Spread capital gains taxes over several years with a third-party, independent installment sale. These contracts allow you to sell a highly appreciated asset, like real estate or intellectual property, to an independent trust or trustee that’s not related to you. Under the contract, the trust pays you for the asset in structured future payments. This allows you to pay capital gains tax for the asset over time, instead of owing all the tax in one year.
Traditional Individual Retirement Account (IRA) contributions
Taxpayers with earned income who aren’t covered by a retirement plan at work can lower their tax bill by contributing money to a traditional individual retirement account (IRA) by April 15th. Taxpayers whose work offers a retirement plan may also contribute to an IRA, but might not be able to deduct those contributions on their tax return, depending on their income level. Traditional IRAs also allow savings to grow tax-free until withdrawn. IRA withdrawals after age 59 ½ are taxable and subject to required minimum distribution (RMD) rules. Deductible IRA contributions lower taxable income, and the tax savings are calculated using the applicable federal and state tax rates, unless changed.
263(a) - Startup Expense
A taxpayer can amortize intangible startup expenses in the tax year in which it has begun operations.
401(k) employee (EE) contributions
Contributing to employer-sponsored plans like a 401(k) is a triple benefit, including 1) reducing taxable income by the amount of contributions, which reduces income taxes by your marginal rate, 2) the savings grow tax-free until withdrawn and 3) many plans offer employer matching contributions, which is like earning free money just by saving. Employee contributions are reported on W-2, Box 12, code D. Employee pre-tax contributions lower taxable income, and the tax savings are calculated using the applicable federal and state tax rates, unless changed.
401(k) employer (ER) matching contributions
Employers can make matching and nonmatching contributions to a sponsored 401(k) plan on behalf of their employee, even if the worker has already maxed out their contributions. Employer matching contributions are like free money, and aren’t subject to Social Security, Medicare, or income taxes. Make sure your client is contributing enough to get the most out of their employer’s matching program. This amount isn’t reported on the W-2 but can usually be found on pay stubs.
403(b) employee (EE) contributions
Contributing to a tax-sheltered annuity like a 403(b) is a triple benefit, including 1) reducing taxable income by the amount of contributions, which reduces income taxes by your marginal rate, 2) the savings grow tax-free until withdrawn and 3) many plans offer employer matching contributions, which is like earning free money just by saving. Employee contributions are reported on W-2, Box 12, code E. Employee pre-tax contributions lower taxable income, and the tax savings are calculated using the applicable federal and state tax rates, unless changed.
403(b) employer (ER) matching contributions
Employers can make matching and nonmatching contributions to a sponsored 403(b) plan on behalf of their employee, even if the worker has already maxed out their contributions. Employer matching contributions are like free money, and aren’t subject to Social Security, Medicare, or income taxes. Make sure your client is contributing enough to get the most out of their employer’s matching program. This amount isn’t reported on the W-2 but can usually be found on pay stubs. Employer pre-tax contributions lower your client’s taxable income, and the tax savings are calculated using the applicable FICA and federal and state income tax rates unless changed.
