What are two tax planning strategies to minimize your future income taxes?

There are many other ways to postpone your taxable income. For instance, you can contribute to a traditional IRA, buy permanent life insurance (the cash value part grows tax deferred), or invest in certain savings bonds . You may want to speak with a tax professional about your tax planning options.

How to get tax breaks for borrowing money?

Individuals can choose to take out loans in a way that may minimize their tax liability – this is called tax-aware borrowing. Qualifying interest paid on mortgage debt and debt used for investments can be deducted .

What are the three basic tax planning strategies?

Three basic tax planning strategies include making contributions to an IRA and/or 401k, utilizing tax credits for deductions, and doing estate planning such as setting up wills and trusts .

How to write off a mortgage for a home office?

As a homeowner, you're able to claim a portion of the mortgage interest (not the principal) that you pay on your home against your business. If 10% of your home is used for business, then you would claim 10% of your yearly mortgage interest on Form 8829, and report the remaining 90% on Schedule A .

Are mortgage payments tax-deductible?

In a nutshell — yes. But let's be clear. We're talking about the interest portion of your mortgage payment that you make each month. The deduction doesn't apply to the mortgage principal, nor the down payment or mortgage insurance premiums (after tax year 2021) .

Are car payments tax-deductible?

But if you bought a car and are making monthly payments, or you're leasing a car, the payments are not actually tax-deductible . But there are still car-related business expenses that you can write off and save significantly on your taxes.

Are business loan principal payments tax-deductible?

Business loan payments aren't tax-deductible . A business loan is not included as taxable income when a company receives a business loan. In turn, when that loan is repaid, you cannot deduct principal payments. You are simply paying back the money you borrowed, not spending money in any way you can write off.

How to pay less taxes with an LLC?

Other ways to reduce LLC taxes include putting money away in a retirement account, deducting health insurance premiums and, if eligible, taking the QBI deduction for service-oriented businesses .

How much income can a small business make without paying taxes?

Income of $400 or less after deductions Generally, self-employed individuals must pay a self-employment tax to make sure they pay their portion of FICA taxes based on their annual income. But, if your net earnings from self-employment were less than $400, you don't have to file a business tax return.

How do I do my taxes if I own my own business?

To file your annual income tax return, you will need to use Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship) , to report any income or loss from a business you operated or profession you practiced as a sole proprietor, or gig work performed.

How much money should I set aside for business taxes?

As a small business owner, you should allocate 30 to 40% of your net income per year to cover your quarterly federal and state tax installments. Setting aside funds for tax time in a separate business bank account with automatic transfers (either monthly or quarterly) makes paying taxes easier.

How much money does a business need to make before filing taxes?

You must file a return if you earn $400 or more in net earnings from your business. Net earnings equal taxable business income minus allowable business deductions.

Tax Planning Strategies for Your Mortgage Business (2024)

American Pacific Mortgage / Oct 7, 2020 9:58:52 AM

That’s right, it’s time to talk about every loan officer’s favorite subject—tax planning strategies for your mortgage business! While this is not the most exciting topic, it’s important because what you do now can help you save on taxes by reducing your taxable income, and sometimes, even your tax rate.

2019 Taxes

First up, let’s talk 2019 taxes. If you filed for an extension for last year’s taxes, that deadline is quickly approaching. Remember, this wasn’t an extension to pay taxes owed but was an extension for filing your 2019 return itself.

If you miss the deadline, you may owe additional penalties for filing late, so it’s worth prioritizing getting your 2019 return in now. Once that’s out of the way, it’s time to think about 2020.

Why You Should Think About Tax Planning Strategies for Your Mortgage Business Ahead of Time

At APM, we recommend that our loan officers start tax planning in October so that they have a full understanding of their tax liability before the end of the year. Why is this so important?

Well, this gives you a complete picture of your tax situation, which may cause you to make some different decisions than you would if you weren’t sure what your tax liability is likely to be.

First, you may decide to take advantage of business deductions or purchase things that you wouldn’t have otherwise if it’s advantageous for your tax bill. Keep in mind, most business spending has to be done by December 31st to qualify as a deduction, so it's important not to wait until the last minute.

How to Prepare for your Meeting with a Tax Planner

First, you’ll need to get your reporting in order and receipts put together. The most helpful report for your tax advisor, if your business is set up as an LLC or sole proprietorship or corporation, is a year-to-date P & L along with and list of any additional retirement or HAS contributions and personal financial documentation.

If you’re a W-2 employee, a year-to-date paystub will work in lieu of a P & L along with a list of any out-of-pocket expenses you’ve incurred for the year. These expenses may include employee payroll and bonuses, education and professional development, office equipment, charitable contributions, HSA and retirement contributions, and more. Consult with your tax professional for more information about taxable deductions.

Organize everything for your tax professional so it’s easy to start making recommendations for you right away. It’s always smart to have these things well-organized in case of a future IRS audit, anyway.Second, you want to work with an accountant who is well-versed in the mortgage industry and knows the deductions inside and out. If you’re not sure who to pick, you can start asking colleagues for their recommendations.

Tax Strategy 1: Maximize Deductions

Tax planning now gives you the ability to maximize deductions and invest in your business prior to the end of the year. It may make sense to lower your tax liability by using some of these strategies.

Here are some deductions you may want to consider:

Employee bonuses and/or compensation
New or used equipment for your business
Charitable contributions
Education and professional development
Prepay services in advance
Health savings contributions
Retirement plan contributions
Travel expenses for your business

For more information on maximizing business deductions, APM recommends that you consult with a licensed tax advisor, who can help you make sure you’re not missing any possible deductions that could lower your bill.

Tax Strategy 2: Adjust Withholdings

If you’re a W-2 loan officer who may owe money on Tax Day based on your end-of-the-year planning, you may want to adjust paycheck withholdings for the last two months of the year. Increasing the withholding from your paycheck can help cover the tax bill and reduce any potential penalty. (There is no penalty if you owe less than $1,000.)

If you’re a business, you may want to make sure that you’ve made enough quarterly payments to avoid penalties at the end of the year. This can be complicated to calculate (especially this year), so make sure you’re working with a tax professional.

Tax Strategy 3: Defer Income Collection

You may consider deferring income for your business based on the advice you receive from your tax advisor. This usually involves delaying the receipt of income until next year or moving up the payment of expenses.

Of course, this depends on the outlook for your business’s future! If you expect significantly higher income next year, for example, it may help to take the hit on taxes this year. If you expect to make less next year, pushing income until then can be a really smart move.

By planning ahead, you may come across options that will help keep more of your hard-earned money in your pocket. A little tax planning now can help you reduce your tax payment and avoid a scramble to pay the bill in April.