Tax Savings Tips

by: Bill West, CPA – Member, Tax and Advisory Services

People often ask me what they should do to save on taxes. My response is it depends on what you are doing and how you make your income. Today, I am going to review a few tax saving opportunities that, if you are in the appropriate category, may prove beneficial.

For taxpayers who own an interest in a flow thru activity conducting a profitable active trade or business, avail yourself of the SC Active Tax or Business annual election of SC Code 12—6-545(G). This allows your flow thru entity (Partnership or S Corporation) to pay the SC income tax on the shareholder/partner’s behalf at the entity level thereby deducting state taxes for federal income tax purposes. If the entity does not make the election, then your SC income tax on this income is subject to the $10,000 individual deduction limit imposed by the federal SALT cap as an itemized deduction and will be reduced or eliminated. This is entirely different from federal section 199A and the Qualified Business Income Deduction (QBID) and is not subject to the specified trade or business rules (SSTB).

Retired and taking IRA distributions but still making a large amount of charitable donations – Rather than taking money from your IRA and writing a check to your church or charity, direct your IRA custodian (typically your broker) to make a Qualified Charitable Distribution (QCD) directly to your charity. The QCD amount can then be excluded from gross income on the face of your return, thereby lowering your adjusted gross and taxable income, potentially reducing the taxable portion of your social security, lowering your medical deduction threshold if you itemize, and generally reducing your taxes. You can no longer claim the QCD charitable deduction on schedule A, but you are not picking up the income. This works well for taxpayers at the threshold of being able to itemize on Schedule A.

Have a kid in college or Private School – You can utilize the SC529 plan as a conduit to pay the tuition (limited to $10,000 per year for secondary school tuition). Contributions to a SC529 plan generate a deduction on Page 2 of the individual SC income tax return automatically saving you 6.5% (or current SC tax rate). First, you will need to make the contribution to the SC529 plan which creates the SC tax deduction, then use the SC529 plan to pay the tuition, even in the same week.

Finally, if you purchased an ATV or UTV and paid more than $500 in SC sales tax, you may be due a refund. The court ruled that ATV and UTV are subject to the $500 tax cap, thanks to the Ecton Law Firm winning a SC Court of Appeals case (see Draft Ruling #23-xx on the SCDOR law and policy webpage for all the latest). You will need to pursue the refund with the selling retailer.

As with all things TAX, the devil is in the details, so consult with your tax advisor or CPA and have them run the numbers.

To learn more about tax savings strategies for you or your business, contact Bill West at [email protected] or (803) 256-6021.