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Seasonal Smarts: Leverage the Holidays for Tax and Finance Planning

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Seasonal Smarts: Leverage the Holidays for Tax and Finance Planning

The holiday season, with its spirit of giving and reflection, is the perfect backdrop for some savvy financial planning. As the year winds down, taking a moment away from the festivities to focus on your taxes and finances can lead to substantial savings and a stronger financial position in the new year. Here’s how you can leverage the holiday season for smarter tax and finance planning.

Maximize Your Deductions

Charitable giving is synonymous with the holiday spirit, and it’s also a fantastic way to increase your tax deductions. Donating to a qualified charity before the year’s end can reduce your taxable income. Don’t forget to keep receipts and records of all donations.

Defer Income

If possible, defer bonuses or other income until after December 31st. This could lower your taxable income for the current year, potentially placing you in a lower tax bracket and decreasing your tax liability.

Spend Your FSA

Flexible Spending Accounts (FSAs) are use-it-or-lose-it. Make sure to spend these pre-tax dollars on qualifying medical expenses before time runs out. Schedule last-minute doctor’s visits or stock up on eligible supplies.

Harvest Losses

Check your investment portfolio for any underperforming stocks. Selling them can offset capital gains you’ve realized during the year, balancing out your tax implications through what’s known as tax-loss harvesting.

Plan for Retirement Contributions

Increase your retirement contributions if you haven’t already hit the yearly limit. Contributions to 401(k)s and traditional IRAs can be tax-deductible, lowering your taxable income.

Prepare for the Upcoming Tax Season

Use the downtime during the holidays to get organized for the tax season. Gather and file receipts, review your records, and start outlining your tax return early to avoid the rush in April.

Reassess Your Withholdings

If you had a major life change this year, such as marriage or a new child, adjust your withholding accordingly to avoid a surprise tax bill or suboptimal refund.

Invest in Energy Efficiency

If you’ve been considering home improvements, look into energy-efficient upgrades. Certain improvements may qualify for tax credits and can reduce your utility bills, too.

Conclusion

While the holidays are a time to relax and enjoy the company of loved ones, setting aside a little time for tax and financial planning can pay off. With these strategies, you can enter the new year with peace of mind and perhaps a little extra in your pocket.

Here’s to your financial health this holiday season,

The Figure Financial Team

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Frequently Asked Questions

FAQs

Is the IRS cancelling the ERC program early?

The IRS released updated guidance on the Employee Retention Credit program on September 14, 2023. The news release below explains that the IRS has placed an immediate moratorium through the end of the year on the processing of new ERC claims in effort to curb fraudulent applications by bad actors. While a moratorium may sound alarming, this intentional pause is a common practice used by the IRS.

This is a developing situation, and we will continue to provide updates as new information is released. This what we know so far:

  • This news confirms that the ERC is still a valid and valuable tax incentive for qualified businesses – this is not a cancellation of the program.
  • The IRS moratorium will delay taxpayers from receiving their ERC funds, but it does not prevent taxpayers from continuing to file for the credit.
  • The IRS may ask for more information to process future ERC claims, which we are prepared to provide as it is already part of our normal substantiation process.
  • We will only release a credit for your business if we are confident you meet the IRS requirements. The positions we take are in line with the updated guidance that the IRS has provided.
  • A large portion of the businesses we evaluate for ERC do not meet IRS eligibility requirements. If we filed a credit on your behalf, it is because we are confident you qualify. You should not be concerned about the credits you have claimed. The positions we have taken continue to be in line with the updated guidance that the IRS has provided.
  • The IRS is taking steps to help taxpayers remediate any inappropriately claimed credits in good faith. The IRS encourages taxpayers to evaluate their eligibility for the credit. If you know anyone concerned with a credit they claimed individually or through a company other than ERC Pros, we can offer assistance through our ERC Substantiation Services.

On January 31, 2024, the House passed the Tax Relief for American Families and Workers Act of 2024, which proposed an end to the ERC program effective January 31, 2024. This is now pending approval from the Senate. Please note that we will not be processing any new ERC claims until a final vote is reached. Our team of attorneys and CPAs is closely monitoring the situation. For more information about this new legislation, read this Tax Update from our legal team on our blog.

Who can withdraw an ERC claim?

Employers for whom all of the following is true:

  • The claim was made on an amended employment return (Forms 941-X, 943-X, 944-X, CT-1X);
  • The amended employment return only added the claim for the ERC – no other adjustments were made;
  • The employer seeks to withdraw the entire amount of the ERC claim; and
  • The IRS had not paid the claim, or the check for the refund has not been cashed or deposited.
Who cannot withdraw an ERC claim?

Employers who have already cashed their refund checks or who claimed the ERC on their original employment tax return.

Why did the IRS create this withdrawal option?

The IRS created the withdrawal option to help small business owners and others who were pressured or misled by ERC marketers or promoters into filing ineligible claims.

Why is this so important?

Claims that are withdrawn will be treated as if they were never filed. The IRS will not impose penalties or interest, which can save you a lot of money.

How does an employer withdraw an ERC claim?
A: Review the instructions carefully at: Withdraw an Employee Retention Credit (ERC) claim | Internal Revenue Service (irs.gov) Section A: You haven’t received a refund and haven’t been notified your claim is under audit.
  • Make a copy of the adjusted return with the claim you wish to withdraw.
  • In the left margin of the first page, write “Withdrawn.”
  • In the right margin of the first page:
  • Have an authorized person sign and date it.
  • Write their name and title next to their signature.
  • Fax the signed copy of your return using your computer or mobile device to the IRS’s ERC claim withdrawal fax line at 855-738-7609. This is your withdrawal request. Keep your copy with your tax records. **If you can’t fax your withdrawal request, you can mail it to the address in the instructions for the adjusted return that applies to your business or organization. Before doing so you should make a copy of the signed and dated first page to keep for your records. It will take longer for the IRS to receive your request if you mail it. Mail your package via certified mail to track and confirm delivery.
Section B: You haven’t received a refund and you’ve been notified your claim is under audit. If you’ve been notified that the IRS is auditing the adjusted employment tax return that includes your ERC claim, prepare your withdrawal request using the steps in Section A, but don’t submit to the withdrawal fax line or mail it using the address below. Instead:
  • If you’ve been assigned an examiner, communicate with your examiner about how to submit your withdrawal request directly to them.
  • If you haven’t been assigned an examiner, respond to your audit notice with your withdrawal request, using the instructions in the notice for responding.
Section C: You received a refund check but haven’t cashed or deposited it.
  • Prepare the claim withdrawal request using the steps in Section A, but don’t fax the request.
  • Write “Void” in the endorsement section on the back of the refund check.
  • Include a note that says, “ERC Withdrawal” and briefly explain the reason for returning the refund check.
  • Make copies for your tax records of the front and back of the voided check, the explanation notes and the signed and dated withdrawal request page.
  • Don’t staple, bend, or paper clip the voided check; include it with your claim withdrawal request and mail it to the IRS at:

Cincinnati Refund Inquiry Unit

PO Box 145500

Mail Stop 536G

Cincinnati, OH 45250

**Mail your package via certified mail to track and confirm delivery.

What happens after submitting the withdraw request?

The IRS will send you a letter telling you whether your withdrawal request was accepted or rejected. Your approved request is not effective until you have your acceptance letter from the IRS. If your withdrawal is accepted, you may need to amend your income tax returns if you already included the claim for the ERC in the filing. If you need help, seek out a trusted tax professional.

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