How Can I Minimize My Taxes?
Paying less tax is a great thing, but it needs to be accomplished in ways that make good business sense.
Tax reduction strategies should be discussed with your CPA or tax professional as there are usually side effects or downsides. Some common strategies:
|Accelerating expenditures||Tax laws and situations change, so next year you may be in a higher tax bracket and therefore pay more tax next year|
|Investing in assets or other expenses that increase revenue and/or efficiency||Requires cash outflow and/or increase in debt|
|Bonus key employees||Increases expense thereby reducing profit and tax but the cash outlay is considerably more than the tax you would pay|
|Pay your children for work performed||Since it is likely your children have minimal income, they would have a lower tax bracket and therefore pay less tax than you would on that amount of profit. However, again the cash outlay is more than your tax, so this only makes sense if you are replacing allowances or money you would pay out from your personal after-tax income.|
|Deferring Revenue||Reducing income reduces profit, but it also impacts cash flow. Also, if your situation changes it may result in higher taxes next year.|
|Deducting personal expenses as business expenses||This is tax fraud! Personal expenses should not be paid out of the business and, if they are, they should be properly accounted for as an owner distribution.|
|Retirement plans||Whether these are company sponsored or personal plans, they are often very beneficial. However, they do increase your expenses.|
As you can see, for every action there is a consequence, so consider your options and consult your CPA or tax professional.
Contact Paisley Solutions to discuss strategies or if you would like a referral to a CPA.