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Ways to Reduce Your Taxes for the New Year

Taxes are inevitable. With that knowledge, it is a good idea to always stay on top of the changes happening in your life or business that will impact your tax liability. Whether you have a company with employees, are self-employed, or are employed by someone else, there are certain ways you should be preparing for tax season now.

Why You Should Plan Ahead

One thing you can be doing all year round is cutting back on your taxable income. It’s important to not only understand which tax breaks you are eligible for; you should also regularly be examining your own financial situation to best understand what to prepare for when taxes arrive.

The following are a few ideas for business owners and individuals to cut back on tax liabilities. To keep more of your hard-earned money in your pockets, there are legal ways to approach reducing your taxes. If you're doing it correctly, it is much more than just the weeks leading up to April 15th. 

Small Business Tax Savings Ideas

If you own a business, there are a lot of things you are constantly trying to keep track of and manage to keep your operations running smoothly. Taxes are an added stress for many, but there are steps you can take now to reduce the amount you’ll owe come tax season.

Retirement Funds – With profitable businesses, you can shelter income in a qualified retirement plan. This will give you a tax deduction on your contributions and defer tax on the earnings on contributions. Note: You will eventually pay the taxes when you start taking the money out of the plan.

Employ Relatives – There are a number of ways the IRS allows businesses to shelter taxable income by hiring on a family member. Children are a great example of this. Small business owners can pay a lower marginal rate to their own kids, or even eliminate the tax on the income paid to the child.

Restructure Your Business – This may sound like a massive feat, but it could save you big in the long run. If your business is set up as an LLC, it may be time to change that. A business with an LLC and S corporations are not given the same tax advantages that a C corporation does. This one switch could save you thousands.

Small business owners aren’t the only ones who can save on taxes. Individuals have some legal ways to reduce their own liabilities. 

Ways to Reduce Individual Taxes

Not many people enjoy tax season. It’s fair to want to keep more of your own money to yourself! The best way to do that legally is through some creative tax reduction techniques. These are just a few that are available to individuals.

Contribute to Retirement Funds – Much like the business advice above, retirements funds make a great way to legally reduce taxes. Whether it’s independently or through a company IRA, contributions will be made with pre-tax dollars. This results in a direct reduction to your taxable income for the year and ultimately to your total tax liability.

Donate to Charity – One of the easiest ways to reduce taxes is to keep track of your charitable contributions. Dropping off loads of stuff at the local shelter? That’s deductible. Give money to a local organization regularly? You can claim it. Cash, checks, direct deposits from your payroll, or even physical goods can all add up to big savings come tax time. You only need to keep proper records of it.

Establish Your Home Office – With so many people working from home on a full-time basis now, there should be more and more home offices being claimed on future taxes. There are some qualification requirements to be aware of. The space must be used for business purposes regularly and exclusively. That means if an extra bedroom is used only for a home office, you can only deduct the percentage of space it takes up in the house for rent and utility fees.

As with the small business tax liability reduction techniques, there are many more available to individuals. It’s only a matter of knowing how to find them and use them legally.

How a Professional Can Help

While this list is helpful, it is by no means all-encompassing. There are so many ways to reduce your tax liabilities. The key is to be informed and regularly checking on your status with the IRS.

Many business owners and individuals don’t have the time to go over every new development in the tax code, but the information out there could be saving you thousands. So, what do you do?

The best option is to work with a professional accountant to regularly check-in with. This will help keep you educated, and allow them to know what is going on in your world so they can apply the best knowledge to your circumstances.

Taxes do not have to be entirely draining and exhausting. With the right help from a tax professional, like your BATS Xpress team, you can head into the new year feeling more confident than ever!