Tax laws change almost constantly. That’s why it makes so much sense to do an annual review of tips that can keep tax bills as low as possible. Fortunately, there are several effective tactics for minimizing your obligation in 2023, including using the QBI, the qualifying business income deduction. What other approaches are worth learning about? Filing on time and taking advantage of automatic extensions are two methods that millions of working people turn to every year for financial relief.
In most cases, it’s worth the cost of hiring a paid preparer who can double-check all deductions and entries on the official documents before transmitting them to the authorities. Finally, the IRS has multiple payment plans available for those who don’t have enough available cash to cover their entire bill at the time of filing. Here are more details that can help you minimize your 2023 tax bill.
Use QBI for Real Estate Investing
If you are a real estate investor, operate a business, or have an LLC, the qualified business income deduction can save you big bucks. QBI came into existence in 2017 as part of a large package of taxation legislation. It’s imperative to learn the basics of the deduction because it allows tax filers to write off up to 20% of their adjusted gross income and thus pay less in taxes.
Keep in mind that it only applies to pass-through entities like sole proprietorships, LLCs, S corps, and partnerships. What’s the wisest way to get started? Review a guide that explains the ins and outs of QBI so you can see whether you can use it to slice tax bills by a substantial amount. While the deduction can’t reduce self-employment tax, it can significantly add to the standard deduction amount, which means there’s no need to itemize to take advantage of QBI.
File On Time
Filing late is one of the avoidable errors that, unfortunately, many people make. Even if you are unable to pay the entire amount owed each year, go ahead and file the return and let the IRS bill you for the payment. Expect to pay interest on amounts owed along with a late payment penalty. However, by filing on time, you’ll avoid an additional charge for failure to file in a timely manner.
Use a Payment Plan
The government allows individuals to set up payment plans that run, on average, three years or less. Modest interest is charged, but the option can be a lifesaver for those trying to get out of debt, save for a large purchase, or simply those on a budget. Contact the IRS by phone and speak to a live person to set up a plan.
There’s an Automatic Extension of Time to File
If you need extra time to file, take advantage of an automatic 6-month extension. Note that this is not an extension for payment. If necessary, tell your accountant that you want to pay the amount owed but don’t want to file a return immediately. They’ll calculate your obligation, and you can send a check to the government.Â When filing via an extension you experience a convenient way to send a complete return within six months of the original due date.