Navigating Tax Law Changes – Tips for Individuals and Businesses

Navigating tax law changes can be a challenge, especially for small business owners. Keeping up with revisions can be difficult when Congress passes so many of them.

Despite a 2022 tax season that may see a smaller refund or higher bill for many, there are steps people can take to prepare.

1. Review Your Deductions and Credits

As tax season approaches, knowing which deductions and credits you qualify for is important. These tax breaks can lower your bill or increase your refund amount. If you’re unsure of the difference between a credit and a deduction or how to claim one, consider consulting with a tax professional for guidance.

Deductions are generally used to lower a person’s tax liability by reducing their taxable income. This happens when taxpayers tally their total taxable income and reduce it by each deduction they qualify for. Deductions can be worth different amounts to individuals, depending on their marginal tax rate. For example, higher-income filers will reap the most benefit from the mortgage interest deduction. On the other hand, middle-income filers will receive a mortgage interest subsidy worth only 12 cents for every dollar they deduct.

On the other hand, tax credits typically offer more value than deductions because they directly reduce the amount of tax you owe. To illustrate, if you’re in the 25% tax bracket and you qualify for $10,000 in tax credits, they will reduce your federal tax liability by that amount.

In addition to the differences between a deduction and credit, it’s important to be aware that not everyone qualifies for every credit or deduction they come across. Tax laws are always changing, and eligibility rules for credits and deductions may change over time. In fact, some of the deductions and credits that were introduced in 2022 are scheduled to “sunset,” decrease in value or have new qualifications by December 31, 2025.

If you don’t understand the impact of these changes, you could miss out on some significant tax benefits. For example, the 2023 tax law makes a number of changes to energy credits for electric vehicles and other forms of energy efficiency. These changes can save you a lot of money on your electricity bills.

As the 2023 filing deadline approaches, it’s important to review your tax strategy with a qualified professional and be prepared for any potential changes to deductions, credits, and tax rates. This way, you can ensure that you’re claiming the full number of benefits available to you and getting the maximum possible refund.

2. Reevaluate Your Tax Planning Strategies

Whether you’re an individual or a business owner, tax season is a major part of your financial year. With so much at stake, it’s important to have well-thought-out strategies to minimize your taxes. But navigating the ever-changing tax code is challenging—even for accountants and other financial professionals.

Tax planning is a way to arrange your finances to maximize tax breaks and reduce tax liabilities legally and ethically. It’s a process that should be viewed as a year-round endeavor rather than something to focus on only in the new year or spring. This is especially true as Congressional leaders continue to consider a comprehensive tax code overhaul.

You should periodically reevaluate your strategy and make changes as needed to get the most out of your tax situation. For instance, you may want to change the number of dependents you claim on your return or reconsider how you’re handling retirement and savings accounts. In the case of a business, you might want to change your depreciation or amortization schedule or explore utilizing an incentive like the small business health care credit.

It’s also worth keeping in mind that tax deductions and credits have limitations. For example, if you’re itemizing your deductions, you’ll only benefit from them if the total of your expenses adds up to more than your standard deduction amount. Additionally, many deductions and credits have carryovers that allow you to apply them in future years.

For businesses, these carryovers can help you offset taxes incurred during profitable years and can also be used to pay off debt. For this reason, it’s important to make sure you’re fully utilizing these benefits.

Another factor affecting tax planning is that some provisions put into place in 2017 are reaching their “sunset” dates. This means they’ll be repealed unless Congress acts to extend them.

When you’re juggling so many different aspects of running your business, it can be hard to keep up with changing tax codes, rates, and brackets. Instead of spending time sifting through IRS documents, hiring an accounting firm to provide you with the latest information and guidance is best.

3. Stay Up to Date

One of the best ways to stay up to date on tax law changes is to work with a tax professional. These professionals can provide advice that helps you understand and adapt to changing laws and save you money on your taxes through strategic planning. They can also help you avoid costly errors and penalties that could arise from not being aware of new legislation.

To keep up to date on the latest tax laws and changes, it’s helpful to subscribe to newsletters that update you regularly on what’s happening at a state or national level. They will also let you know when any changes to filing deadlines or forms are made. Some of these newsletters will even provide helpful tips and tricks that you can pass along to your clients to help them make the most of the changes to the tax code.

Another way to stay up to date on the latest tax laws and changes is to attend conferences and events that provide valuable learning outcomes. This is an opportunity to network with other industry leaders, enhance your knowledge and develop yourself as a professional. If you’re not sure which events are worth your time, reach out to peers and mentors for recommendations that align with your specialism. You can also utilize online educational tools, such as webinars and podcasts, to learn more about topics that are relevant to your client base.

A final thing to keep in mind when it comes to staying up to date on the latest tax law changes is to review state and local government websites. Some will provide updates on any legislation affecting residents, while others may have information about what changes to expect at the federal level.

Keeping up to date on the latest tax changes is vital for individuals and businesses alike. These laws can be complex and change frequently – sometimes dramatically from year to year. Trying to navigate them without the help of a tax professional can lead to confusion and costly mistakes that could impact your bottom line. To reduce these risks, consider working with a trusted tax professional to help you save money and stay compliant all year long.

4. Collaborate with Tax Professionals

One of the best things a tax professional can do for their clients is to help them stay informed. This includes educating them on what changes may affect them and how they can mitigate those effects. For example, an estate tax professional could save heirs and executors a lot of headaches by helping them understand how federal and state inheritance taxes work and what they need to do to avoid pitfalls and minimize their exposure.

Another way a tax professional can help is by providing support when issues arise. Whether it’s an unexpected change in the tax code or a sudden financial crisis, there are times when clients need someone to talk with, reassure them and guide them through the process. This is where a tax professional can provide the most value and where they must have strong written and verbal communication skills.

Tax professionals also know their client’s businesses and industries, which is why they are able to interpret and apply the rules of the tax code in a real-world setting. As a result, they can often find ways for their clients to benefit from the law changes while staying within its bounds. This type of problem-solving can give tax professionals the same satisfaction as many people get from a well-solved crossword puzzle or sudoku board and is an important aspect of what they do.

In addition to educating and supporting their clients, tax professionals can also add value by offering services beyond filing tax returns in addition to educating and supporting their clients. This can include bookkeeping, payroll, business planning, and audit solutions. Providing these services can help them build trust with their clients and establish long-term relationships.

Adding value can be as simple as making onboarding new clients easier. An efficient, streamlined onboarding process sets the tone for the relationship and makes it clear what to expect from the firm in terms of communications and how their information will be handled. Taking a proactive approach to this helps the firm avoid mistakes and demonstrate the level of care they want their clients to receive.