Strategic Tax Planning: Why it Matters and How to Do It Right

Do you think of tax planning only when the tax season is looming on the horizon? If so, you might be missing out on valuable opportunities to minimize your tax liability and maximize your financial potential. Strategic tax planning is an ongoing process, and it can make a significant difference in your wealth accumulation over time.

Understanding Strategic Tax Planning

Strategic tax planning is not about finding quick loopholes or evading taxes. Rather, it is about understanding the tax laws and leveraging them to align with your financial goals. It involves making the best use of the deductions, credits, exemptions, and structures offered in the tax code to reduce your tax liability.

Why Strategic Tax Planning Matters

Effective tax planning can result in considerable savings, contributing to your wealth accumulation over the long term. Additionally, it provides clarity about your financial situation, making it easier for you to plan for the future. Finally, it ensures that you are compliant with the tax laws, reducing the risk of penalties and late fees.

How to Do It Right

Effective tax planning requires a clear understanding of your financial situation and goals, knowledge of the tax laws, and an ability to plan ahead. Here’s a step-by-step guide:

1. Understand Your Financial Situation: Begin by reviewing your income sources, expenses, investments, and financial goals. This will give you a clear understanding of your potential tax liabilities and the planning opportunities available to you.
2. Know the Tax Laws: Tax laws are complex and ever-changing. You need to stay updated on the latest changes that could affect your financial situation. This could be a new tax legislation, an updated deduction, or a revised tax credit.
3. Leverage Deductions and Credits: Make the most of the deductions and credits available to you. This could include expenses related to home offices, education, healthcare, and more. You might also qualify for various tax credits based on your situation.
4. Plan Ahead: Tax planning is not a once-a-year activity. It requires regular reviews and adjustments based on changes in your financial situation and tax laws.
5. Seek Professional Help: Given the complexity of tax laws, it’s wise to seek the help of a tax professional. They can provide personalized advice tailored to your situation and ensure that you are fully compliant with the tax laws.

Strategic tax planning is an essential part of managing your financial health. With the right approach, you can reduce your tax liability, save more, and have a clearer understanding of your financial future.

Stay tuned for more insights into the world of strategic financial management.

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Frequently Asked Questions

FAQs

The IRS released updated guidance on the Employee Retention Credit program on September 14, 2023. The news release below explains that the IRS has placed an immediate moratorium through the end of the year on the processing of new ERC claims in effort to curb fraudulent applications by bad actors. While a moratorium may sound alarming, this intentional pause is a common practice used by the IRS.

This is a developing situation, and we will continue to provide updates as new information is released. This what we know so far:

• This news confirms that the ERC is still a valid and valuable tax incentive for qualified businesses – this is not a cancellation of the program.
• The IRS moratorium will delay taxpayers from receiving their ERC funds, but it does not prevent taxpayers from continuing to file for the credit.
• The IRS may ask for more information to process future ERC claims, which we are prepared to provide as it is already part of our normal substantiation process.
• We will only release a credit for your business if we are confident you meet the IRS requirements. The positions we take are in line with the updated guidance that the IRS has provided.
• A large portion of the businesses we evaluate for ERC do not meet IRS eligibility requirements. If we filed a credit on your behalf, it is because we are confident you qualify. You should not be concerned about the credits you have claimed. The positions we have taken continue to be in line with the updated guidance that the IRS has provided.
• The IRS is taking steps to help taxpayers remediate any inappropriately claimed credits in good faith. The IRS encourages taxpayers to evaluate their eligibility for the credit. If you know anyone concerned with a credit they claimed individually or through a company other than ERC Pros, we can offer assistance through our ERC Substantiation Services.

On January 31, 2024, the House passed the Tax Relief for American Families and Workers Act of 2024, which proposed an end to the ERC program effective January 31, 2024. This is now pending approval from the Senate. Please note that we will not be processing any new ERC claims until a final vote is reached. Our team of attorneys and CPAs is closely monitoring the situation. For more information about this new legislation, read this Tax Update from our legal team on our blog.

Employers for whom all of the following is true:

• The claim was made on an amended employment return (Forms 941-X, 943-X, 944-X, CT-1X);
• The amended employment return only added the claim for the ERC – no other adjustments were made;
• The employer seeks to withdraw the entire amount of the ERC claim; and
• The IRS had not paid the claim, or the check for the refund has not been cashed or deposited.

Employers who have already cashed their refund checks or who claimed the ERC on their original employment tax return.

The IRS created the withdrawal option to help small business owners and others who were pressured or misled by ERC marketers or promoters into filing ineligible claims.

Claims that are withdrawn will be treated as if they were never filed. The IRS will not impose penalties or interest, which can save you a lot of money.

• Make a copy of the adjusted return with the claim you wish to withdraw.
• In the left margin of the first page, write “Withdrawn.”
• In the right margin of the first page:
• Have an authorized person sign and date it.
• Write their name and title next to their signature.
• Fax the signed copy of your return using your computer or mobile device to the IRS’s ERC claim withdrawal fax line at 855-738-7609. This is your withdrawal request. Keep your copy with your tax records. **If you can’t fax your withdrawal request, you can mail it to the address in the instructions for the adjusted return that applies to your business or organization. Before doing so you should make a copy of the signed and dated first page to keep for your records. It will take longer for the IRS to receive your request if you mail it. Mail your package via certified mail to track and confirm delivery.

• If you’ve been assigned an examiner, communicate with your examiner about how to submit your withdrawal request directly to them.
• If you haven’t been assigned an examiner, respond to your audit notice with your withdrawal request, using the instructions in the notice for responding.

• Prepare the claim withdrawal request using the steps in Section A, but don’t fax the request.
• Write “Void” in the endorsement section on the back of the refund check.
• Include a note that says, “ERC Withdrawal” and briefly explain the reason for returning the refund check.
• Make copies for your tax records of the front and back of the voided check, the explanation notes and the signed and dated withdrawal request page.
• Don’t staple, bend, or paper clip the voided check; include it with your claim withdrawal request and mail it to the IRS at:

Cincinnati Refund Inquiry Unit

Cincinnati, OH 45250

**Mail your package via certified mail to track and confirm delivery.

The IRS will send you a letter telling you whether your withdrawal request was accepted or rejected. Your approved request is not effective until you have your acceptance letter from the IRS. If your withdrawal is accepted, you may need to amend your income tax returns if you already included the claim for the ERC in the filing. If you need help, seek out a trusted tax professional.