This article was originally published in a sponsored newsletter.

Did you file an extension for your business and personal tax returns last month? If you did, let's review a few additional considerations you can explore. If you didn’t, you can still use these tips to plan for next year. There are many nuances to follow, and nothing in this article should be considered tax advice.

Expert Collaboration

Years ago, a successful doctor and business owner taught me the importance of staying in your zone of genius and working with other professionals in theirs. In his world, that meant collaborating with a great CPA, attorney, financial advisor, IT professional and business consultant like me. Assuming you’re already working with a tax professional and personal financial advisor, use these tips to make your collaborative efforts more effective. If you don’t currently have this kind of professional support, this a great place to start.

Payments and Documentation

Next, remember that an extension doesn’t give you more time to pay any taxes due. Ensure you paid at least 90% of your current year's tax liability or 100% of last year's liability (110% if your adjusted gross income was over $150,000) to avoid penalties. Including your Q1 estimated payment in your tax return can provide an extra buffer.

While the final due date of October 15th seems far away, start gathering additional documentation now. Taxes are detailed work, so create a checklist and a plan. Your tax professional can help you make a list of everything you need. Use the extra time to gather information, especially if you’re still waiting on tax documents or need more time to track down receipts. Double-check everything to reduce the risk of an audit or filing an amendment in the future.

Savings Now and Later

Ask your tax professional how these often-overlooked tax savings can be incorporated in your situation:

• Review the depreciation expenses on your new equipment purchases.
• Determine whether bonus depreciation for additional write-offs on new and used equipment is preferable this year.
• Review any compensation for your children or spouse who worked in the business. They can allocate that compensation into tax advantage accounts without impacting your limits and you can reduce your taxable income.

Now is the time to start planning for next year. Especially if your business profits are steady or growing, optimizing tax savings and allocating investments for your future can pay dividends! Consider maximizing the following tax-advantaged accounts:

• 529 Plans: Your contributions will grow tax-free and must be used for education purposes. Some states, like New York, allow for additional state deductions, but benefits vary by state.
• HSA Plans: HSA plans are only available with some medical insurance plans. If your plan allows, the 2024 contribution limits are $4,150 for an individual (up from $3,850 in 2023) and $8,350 for a family. These accounts are pre-tax dollars or tax-deductible, and they grow tax-free. Like the 529 plan for education, money from an HSA plan must be used for qualified medical purchases to avoid taxes or penalties.
• Tax-Advantaged Retirement Accounts:
  • IRA: You can contribute to an IRA or back-door Roth IRA until you file your taxes, with an annual limit of $7,000 for 2024 ($8,000 if you're over 50).¹
  • 401K: Maximize contributions, with a limit of $23,000 for 2024 (an additional $7,500 if over 50).¹
  • SEP IRA: If you have a side hustle with a 1099 income, you may be able to contribute the lesser of 25% of your net earnings or $61,000 for 2024.
  • Profit-Sharing Plans: Review your plan and make final adjustments before the tax filing deadline, including extensions. If you don't have one, consult an expert to evaluate options. These plans are especially beneficial for smaller practices where the owner doctor's salary is a high percentage of the total payroll.

Most years, I wait on a document from one of my investments, necessitating filing an extension. Even when I have everything ready, I typically file an extension to give myself additional time to double-check the details, make decisions on retirement accounts and plan for the following year. By leveraging these strategies and working closely with your financial advisors, you can maximize your tax savings and ensure a more efficient tax preparation process.

Reference(s):

1. Internal Revenue Service. 401(k) limit increases to $23,000 for 2024, IRA limit rises to $7,000. November 1, 2023. Updated January 8, 2024. Accessed May 21, 2024. https://www.irs.gov/newsroom/401k-limit-increases-to-23000-for-2024-ira-limit-rises-to-7000

Evan Kestenbaum is a lifelong entrepreneur and data geek who has co-founded and led several successful businesses within eye care. His latest project provides resources and advocacy for people who stutter. Evan enjoys spending time with his wife, Paula, in their most fulfilling role: parents to three adventurous daughters. For questions or comments about this article, please contact ekconsulting@gmail.com.