INDIVIDUAL INCOME TAX
What if we told you that there are deductions you can make to your employee salary that you never considered?
individual income tax
When it comes to areas in the tax world that generate the most buzz, individual income tax takes the cake for top priority in the lives of ordinary Americans. Political elections are won and lost on the idea of either increasing or decreasing your personal taxes. It affects our daily lives in ways that seem ridiculous; used car salesmen ratchet up their commercial around Tax Day, banking heavily that consumers will use their tax refunds to purchase vehicles.
What do we really know about individual income taxes, though? Do we really understand everything that’s going on? For the average American, the answer is almost assuredly no. However, the experts at Savvy & Suite are here to provide you with the answers you’re looking for when it comes to your personal taxes and will work to maximize the benefits of the Code to best suit your personal tax situation.
First and foremost, what is individual income tax? This may seem like a straightforward question, but the answer entails more than one might think. If you’ve perused some of our other service offerings, you may have seen just how many variables and interlocking parts exist within the United States’ tax code. Because of this intersection of business and personal, individual income tax becomes muddy fairly quickly.
In the grand scheme of things, an individual income tax return adds up all of your (and your spouse’s, if applicable) income, subtracts applicable deductions, multiplies the remaining amount by your individual income tax rate, subtracts any credits or withholdings you have generated in that tax year from the tax liability, and boom, you either owe money or you get a refund. Simple, right? Not so much. Even the easy version is convoluted!
However, it’s easy to get out of control very quickly, especially when it comes to owning a business. Because a vast majority of businesses in the United States today are structured as flow-through entities, this adds another wrinkle to your personal income tax return. Here’s the gist: flow-through entities function exactly how they sound. The profits from your business are reported on their respective compliance form, but no tax is paid at the entity level. Instead, your business profits flow through to your personal tax return, where they are included in the income calculation discussed above. Because businesses can swing from one year to the next, it’s important that you have a knowledgeable partner to aid in the tax planning process. Fear not, though: because we’ve been doing this for so long and have even weathered a massive tax law overhaul in recent years, Savvy & Suite is well-positioned to get your tax compliance done right while simultaneously keeping you abreast of all the happenings in the tax world.
So far, everything we’ve talked about is at the federal level, but as we know, everyone wants a bite out of the cookie. If you live in a US state, it’s highly likely that you will also have to file an individual income tax return at the state level (there are some famous state exceptions – Florida is probably the most famous). Complicating this is the fact that each jurisdiction maintains their own requirements for filing and calculates tax in different ways. Some states start their individual income tax calculation with taxable income, while others start the calculation with Adjusted Gross Income. From there, it is adjusted by state adjustments and a tax is calculated based on the state rate. Similarly to the federal return, this tax is offset by any state credits or withholdings/payments that have occurred throughout the year. There are also circumstances in which you may have to file an individual income tax compliance form in two separate states: let’s say you live in New York but travel to work in a neighboring state. Do you know if you have to file both the New York individual income tax return and the income tax return of the neighboring state? We’d be happy to walk through the guidance and illustrate any potential exposure.
Think it can’t get more complicated? It can! Cities can even institute their own individual income tax, with unique requirements themselves. As such, it’s vital to know the difference between New York City individual income tax filing requirements and other cities, such as Ohio municipalities as one other example. This just goes to show how quickly things can become convoluted, especially when trying to make sense of this all yourself. Instead, save the headache and call Savvy & Suite to keep your tax compliance in order.
All this seems deep, but we’re only in the compliance arena! If you haven’t gathered by now, it’s crucial to have a plan, whether that’s a yearly tax planning strategy or a long-term one. Without a plan, it’s more likely that you have a surprise on Tax Day and absolutely no one wants that. We’ve seen a wide range of tax planning strategies and would love to discuss your goals and aspirations to create an impactful tax plan that helps you reach those goals. This is especially true if you’re anticipating unique events happening in the near future, such as selling your business. Before any numbers are exchanged, it’s important to get a grasp on the tax implications of something like this; Savvy & Suite would be honored to play a role in such an exciting time, making sure you understand the tax consequences of a sale.
Individual income tax is arguably the most popular (albeit negatively viewed) section of the tax landscape due to it impacting everyone from CEOs to minimum-wage workers. Personal income tax really can seem daunting and can quickly seem overwhelming when considering adding multiple income streams or advanced deductions. Compliance rules vary at the federal, state, and even municipal level, so it’s important to build a relationship with someone that has experience working compliance at all levels. Savvy & Suite has worked in this area for over two decades, navigating economic crises and massive overhauls in tax law. We’re also here for planning needs, giving you the understanding necessary to rest easy as the calendar turns closer to Tax Day.