Getting on top of your finances when you run your own business or when paying income tax is vital and whilst it is important to have a strong accountant and financial advisor, it pays to understand some ways you can save money and lessen your tax bill.
It is a complicated area and one which does need to be overseen by an expert but sometimes you can see potential for tax savings where your accountant can’t, this is because you know your business better than anyone else, so opportunities may be more obvious to you. You can also get to grips with a few lesser known ways of reducing income tax which could be highly beneficial to you and your family.
Let’s start with one of the most obvious. Giving to charity. Plenty of businesses chuck cash into charities directly or through fundraising events however there are loads of ways you can make this work even better for you and the beneficiary. Give stock, mutual funds or other investments to organisations. This can include your church or other place of worship too. An investment is better than cash as the charity won’t have to pay for the gains in their value, capital gain.
The 1031 exchange can be a great way for those with a lot of capital to reduce their tax liability. Other investments are available too so talk to a financial advisor about the best places to let your money go to work.
A lesser known tip is that you can also deduct medical expenses if you have had lots of bills this year. They will need to be over 10 percent of your income, slightly less if you are above 65. You can add glasses, dentists or non-urgent surgery and transport costs to the doctor also count towards this figure. Again check with a professional to see if you can take advantage of this.
If you are moving due to work then you can deduct the expenses from your income tax. You need to ensure you are a minimum of 50 miles closer to your work than your previous home and that you are working full time.
If you have a child of college age then you can get a credit of $2,500 per student each year. You can claim for a maximum of three students a year which gives you $7,500 worth of credits.
If you are on a salary and not a business owner it is harder to control your taxes. Small businesses can bill a client at the end of a tax year so they get paid the following year. However you can reduce the income you are taxed on if you put as much as you can into a 401(k) or IRA. Upto $18,000 can go into a 401(k) this amount increased if you are over 50. The maximum contribution is $5,500 but ensure you have the right kind of IRA. If you are a business owner you could open up a retirement count as a SEP IRA.
Get creative and get smart. It could save you a fortune