Strategies for Tax Optimization: How to Lower Your Tax Bill

Andi Stamper

January 1, 2024

Accounting,Taxes

With tax preparations underway this month, one of the top questions asked is “How do I lower my tax bill?” Managing your accounts to lower taxes involves strategic financial planning and utilization of various tax-advantaged accounts and strategies. Before we get into the strategies and accounts, just a few general reminders:

1. Tax planning is intricate and varies for each person. Tailor your strategy to your needs and consult professionals for compliance with current tax laws.

2. Tax-advantaged accounts provide specific benefits, encoouraging savings for purposes like retirement or education.

3. Tax advantaged accounts coome in two forms:

– Pre-tax (tax-deferred) accounts delay tax payments on contributions until withdrawal

– After-tax accounts, funded with already-taxed money, exempting investment earnings from further taxes.

Now, let’s look at various tax-advantaged savings accounts in greater detail to help you minimize your tax liability:

1. Retirement Accounts

Contributions to these accounts are often tax-deductible, and the earnings grow tax-deferred until withdrawal.

– 401(k): Employer-sponsored retirement savings plan that allows employees to contribute a portion of their salary on a pre-tax basis.

– Traditional IRA (Individual Retirement Account): Individual retirement account that allows tax-deductible contributions (subject to income limits.

2. Roth Accounts

While contributions are made with after-tax dollars, qualified withdrawals, including earnings, are tax-free.

– Roth 401(k): Similar to a traditional 401(k) but with after-tax contributions.

– Roth IRA: Individual retirement account with after-tax contributions.

3. Tax-Loss Harvesting

Offset capital gains by selling investments with losses to reduce your overall taxable income.

4. Choose Tax-Efficient Investments

Opt for investments that generate lower tax liabilities, such as tax-efficient mutual funds or index funds. These investments may result in fewer capital gains distributions.

5. Take Advantage of Tax Credits

Identify and take advantage of available tax credits. Examples include the Child Tax Credit, Education Credits, and the Saver’s Credit for retirement contributions.

6. Employer-Sponsored Benefits

Maximize benefits offered by your employer, including:

Flexible Spending Accounts (FSA)

– Health FSA: Allows employees to contribute pre-tax dollars to pay for qualified medical expenses not covered by insurance.

– Dependent Care FSA: Allows employees to use pre-tax dollars to pay for qualified dependent care expenses.

Employee Stock Ownership Plans. (ESOP): Allows employees to become partial owners of the company by acquiring shares in a tax-advantaged manner.

7. Health Savings Account (HSA)

Contribute to an HSA if you have a high-deductible health plan. HSA contributions are tax-deductible, and withdrawals for qualified medical expenses are tax-free.

8. Education Savings Accouont

Earnings grow tax-free, and withdrawals for qualified education expenses are tax-exempt.

– 529 Plan: State-sponsored savings plan that allows for tax-free withdrawals when funds are used for qualified education expenses.

– Coverdell Education Savings Account (ESA): Allows after-tax contributions with tax-free withdrawals for qualified education expenses.

9. Timing of Capital Gains and Losses

Time the realization of capital gains and losses strategically. For example, consider delaying the sale of investments with gains until they qualify for long-term capital gains treatment.

Take Home

Tax-advantaged accounts offer ways to save and reduce tax liability. Be aware that contribution limits, eligibility, and tax treatment vary between accounts and may change with tax laws. Stay updated, adjust strategies to new regulations, and seek advice from financial professionals based on your goals and circumstances.

STEPS TO FOLLOW TO BUILD A 1099 BUSINESS:

Protect yourself and your assets by performing your contract work under the umbrella of a business entity. Think about what you’d like your proposed business to be named!
- Visit your Secretary of State website to see if your chosen name is available
- Check with your state’s Board of Nursing for state specific requirements
File applicable business set-up paperwork

The S-Corp Edge: How you structure your 1099 CRNA business will have far-reaching consequences, whether it is a sole proprietorship, a limited liability corporation (LLC), or an S corporation (S-corp).
An S-corp may offer several advantages over other business structures when it comes to taxation. In this structure, a business owner is called a shareholder, and the business owner is recognized by the IRS as an employee of the business. What this means is that the business owner must pay themselves a salary through the corporation. The S-corp pays their payroll taxes, which can in turn be deducted as a business expense. Income tax is paid through its owners’ tax returns based on their percentage of ownership. Moreover, any remaining profits have a lower tax rate than regular income. An S-corp may also allow 1099 CRNAs to avoid a higher tax level that other self-employed contractors pay for Medicare and Social Security.
A CRNA may structure their company as an S-corp serving as the sole owner, with their business income, tax deductions, and losses passing through to the owner, as opposed to being taxed at a corporate level – a potentially smart move for maximizing financial security in the future.

- Register for an EIN
Open a business checking account and credit card
Keep track of all your business expenses as these could save you money come tax time!
- Have an envelope for receipts or a folder on your computer where you scan these into
Be sure not to co-mingle your business and personal finances!
Remember, as a freelance CRNA, if you don’t work, you don’t get paid!
- Do you have at least six months savings should your contract abruptly stop?
Think about replacing your current benefits
- Health Insurance
- Health Savings Account/Dependent Savings Account
- Retirement Savings Account
- Life Insurance
- Disability Insurance
Procure malpractice insurance
Look for jobs!
Apply for state licenses where you want to work
- Each state needs a different CRNA license (and RN if they are not a compact state). Keep this in mind as some BONs can take 3-6 months to license a provider.
Have an employment attorney review your contract
Have your contract written to your business and deposit all earnings into your business checking
Keep A Schedule

As a W-2 employee, your taxable income and amounts taken out for taxes appeared on your W-2 form at the end of every year, without you having to calculate them. But when a firm pays more than $600 for services from an independent contractor, that income must be reported to the IRS.
What many 1099 CRNAs don’t realize is that they must pay taxes on their income as they earn it. Paying your quarterly estimated income taxes will be a new part of running your business successfully.
It doesn’t sound so difficult—keeping track of paying estimated income tax only happens four times a year. But the reality is a late payment can result in penalties and fines from the IRS. Keeping a schedule to help you stay on top of your quarterly estimated tax payments, and paying adequately to avoid underpayment, is imperative in avoiding penalties in the future. Not to mention providing peace of mind!

Make sure you have a trusted team of accounting and/or financial professionals who have experience with freelance CRNAs to guide you through this process!

CPAs
Financial Planners
Bookkeepers

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Have Any Questions?

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