Whether you’re cannabis business has had a great year, or you are navigating recent losses, there are a number of year end tax planning ideas you can utilize to lower your tax burden. Here’s some year end tax tips for individuals to make the right moves now and celebrate a more profitable 2022!
Are You Saving For YOUR Retirement?
Increase your pre-tax retirement contributions to reduce your taxable income. If you do not have an employer sponsored retirement plan to contribute to and are over the income limits for a traditional IRA contribution, talk to your accountant about the strategy of a back door Roth IRA contribution.
Talk to your cannabis accountant about what strategy will work best for you today!
Tax Savings for High-Deductible Health Plans
Are you looking for a tax break? If you have a high deductible health plan and are eligible for a health savings account (HSA), consider maxing out your contributions to the account. This is another great year end tax tip for individuals. Maxing out this type of account is a great tax benefit as you get a tax break when you put the money in, and it is very easy to get it back out tax free as well.
Also, health savings account funds that are not utilized in the current year carryover to future years. These are not “use it or lose it” type plans. If you are unsure if you are eligible for a health savings account, contact your insurance company, insurance agent, or HSA banker.
3 Tax Deductions You Didn’t Know About
- Have a favorite charity? You can donate up to $600 ($300 if single) this year to approved charities and deduct it from your taxable income, even if you already take the standard deduction. Or bunch two years’ worth of donations in one year to double-up, if you are close to being able to take itemized deductions.
- Avoid the Kiddie Tax, start a 529 plan for your children’s future, and make tax-deductible contributions. Reach out to your cannabis accountant to determine how your state handles these types of deductions.
- Suppose you have a capital loss carryover from last year or capital losses in your current investment portfolio that could be harvested. In that case, you may be able to take advantage of this by selling capital assets at a gain. This allows you to offset the increase with the carryover loss in your current portfolio and provide greater tax savings.
Looking For Ways To Keep The Kids Busy While They’re On Break From School?
If you have a business entity in which you are allowed to deduct payroll (Ie: not a retail cannabis business) you might consider hiring your kids to work for you part time. Especially in the summer months, to keep them busy. You could pay your children as W2 employees up to $12,000 each and they would not have to file an income tax return. This would save you on income taxes as you would get to deduct their wages from your business income. Since they would not need to file an income tax return and you get to deduct the income, that makes the money you pay them tax free.
If your child is under age 18, you can also save on payroll taxes as they are not subject to FICA. You must actually pay them a check or direct deposit. And you can’t report payroll to your kids if you don’t physically “cut the check”. You could also just put the money directly into an account with their name on it so it doesn’t ever touch their hands. A Roth IRA is where a lot of people end up putting the first $6,000 each year. This would work for as long as they don’t have other sources of income. So, if they get another part time job, this strategy is no longer a good one.
Don’t Forget These Tax Saving Tips!
- Review your investment accounts for wash sale losses. Wash sale losses are not deductible and should be avoided, if possible, from a tax planning perspective.
- Use the same tax preparation company for your personal and business tax returns. Using the same accounting services can help operators take advantage of tax savings strategies.
- Individuals must report all money received from the IRS in the 2021 stimulus package. You can log into your IRS online account to get more information on Letter 6475 and Letter 6419, the stimulus and advance child tax credit payments.
- Lastly, don’t forget about your 4th quarter estimated tax payment! Reach out to your cannabis accountant if you need help calculating what that should be.
Final Thoughts on Year End Tax Planning for Individuals
Navigating the complexities of cannabis taxes doesn’t have to be a burden you handle alone. Work with experienced cannabis accountants like GreenGrowth CPAs and we’ll do our best to lower your tax bill in 100% legal and defensible ways. For more year end tax tips for individuals or if you have any questions about tax planning, 280E deductions, or any other topics, please schedule a consultation here or call 1-800-674-9050.