Here are 5 strategies for reducing your taxes every day.
1. Daily deductions
Deductions occur every day, not just once a year. Think about every expense you have and document your deductions. As entrepreneurs and investors, you should be looking at your expenditures daily to see what happens from a tax standpoint. Ask yourself, is there a way to make the money I’m spending at the grocery store or restaurant deductible, and what documentation is needed? This is why it’s imperative to stay current with your bookkeeping. It’s easier to have a professional bookkeeper doing your books than yourself. You must discuss expectations so you are able to give them what they need to achieve the maximum amount of deductions. Your bookkeeper can remind you and help you with your documentation. Don’t forget, every expense can be deductible.
2. Conversion
Conversion centers around money coming in. You should take time to analyze and locate where and how your money is coming in. Is your money coming into the right entity or is it miscellaneous income which will have a high self-employment tax on it? This is why you need to analyze and document where your money is going, so you can get your income in the right place, resulting in a lower tax amount. If you have investments, take the time to look at them frequently so you can best take advantage of the tax benefits.
3. Tax brackets
Remember, deciding to employ your children affords many benefits. Your children have their own tax bracket. If it’s possible to employ your children, do it now. Employing your children in your family business is a great opportunity to teach them about money, about work, and about your business. It can bring you closer together as a family. It provides great tax benefits because your children have their own tax brackets when it comes to earned income. This is something you want to be looking at on a daily basis. Consider every dollar you pay your child as a deduction to you, and depending on their tax bracket, it may not even be taxable to them. Spend time with your bookkeeper and tax advisor and set this up properly.
4. Elimination
Your ultimate goal should be to generate tax-free income. It’s important to look at what you are doing every day in your normal life. Evaluate and determine what you can do to reduce your taxes or eliminate your taxes altogether daily. Consider your life insurance or your real estate. These are tax-free. Consider taking advantage of solar tax credits. This is another way to generate tax-free income. Always look at your daily activities to discover opportunities to reduce or eliminate your taxes.
5. Deferral
Deferral allows you to postpone your taxes to a later year. This option can be implemented once you have done all the other daily tax activities we discussed. Deferral allows you an opportunity now with a 20% pass through deduction. You may want to maximize that 20% deduction if your income is above a certain threshold. In order to do this, you need to consider deferral. This may be a pension plan or a retirement plan, or it may require you to structure your business differently.
The best time to begin tax planning is at the beginning of the year. The absolute worst time to begin tax planning is at the end of the year. Take the time to discuss your tax return with your tax advisor. When gathering information for your tax returns, consider what could be deductible. This will allow you to learn what could’ve been deductible and plan for next year. Remember, when you have a daily tax reduction routine, you are going to make way more money and pay way less taxes.
Want help reducing your taxes and increasing your wealth? Book a call with TFW Advisors® today!