Accounting News and Notes

Duluth/Gwinnett/Lawrenceville CPA Asks: Need to Know What Your Tax Bill is NOW & Ways to Reduce It

At His CPA PC we work hard to ensure there are no tax surprises for our clients. The below is a sample tax planning/tax mitigation letter we might send to a client looking to keep their bill as low as legally possible. Is it time to upgrade your tax services to an award winning CPA?

For 2011

In reviewing your data for 2011 it appears that you should be (based upon estimates of your taxable income, exemptions and itemization’s) in a refund situation. To lower your tax bill further, if you have a SEP/IRA I suggest you go ahead and fund the maximum for this for 2011. If you go ahead and fund it BEFORE we timely file your 2011 return I can deduct this on your 2011 return. If you do not have a SEP/IRA we would have no other viable options for 2011. Please let me know when you find out what type of plan you have and your plans so we can work to finalize your corporate return. For 2011 your marginal tax rate for federal and state will be approximately 31% (25% to the IRS & 6% to GA). This means that if your are able to fund $10K to a SEP/IRA plan that you will save $3,100 in taxes ($10K times 31%).

For 2012

Based upon anticipation that your 2012 income will be approximately the same as 2011, but without the of fixed assets you purchased in 2011, your 2012 estimate taxable income will be much higher than in 2011. If you were to set up/have a 2012 retirement plan that would enable your taxable income to be reduced by $40K, then your estimated 2012 taxes would be $40K to the IRS and $12K to GA.

For 2012 your marginal tax rate for federal and state will be approximately 39% (33% to the IRS & 6% to GA). This means that if you do not fund the $40K retirement account above in 2012 that you would owe an additional $15,600 in taxes ($40K times 39%).

You present salary levels are well too to satisfy the IRS rules for S corporation owners to take a fair and reasonable salary given position and profit. The best test for this salary amount is what an S Corporation owner would have to pay someone to perform their job. At a minimum I suggest you increase your gross salary to $8K to $10K monthly and your federal withholding as per the below (which reflects your estimated tax bill if your 2012 profits are as you anticipate and your funding the $40K for 2012 to a qualified retirement plan).

Suggested monthly federal withholding $3,300
Suggested monthly state withholding   $1,000

Please be reminded as 2012 continues you can adjust your gross salary amounts and withholding to adjust to actual operating results keeping in mind your estimated marginal tax rate to the IRS of $33% and to GA of 6%.

Atlanta CPA Helps Find Frequently Missed Tax Deductions.  See http://www.hiscpa.com/maximizing-deductions.html

To read more about income tax rates and the IRS’s Circular E (Employer’s Tax Guide) see http://www.irs.gov/pub/irs-pdf/p15.pdf

Bookkeeping Guidance for America’s Entrepreneurs

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This entry was posted on Thursday, January 19th, 2012 at 9:40 am and is filed under Business Loans & Money Management, Corporate & Personal Income Taxes.
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