self employment and taxes - what do you do?

Posted on: 19 January 2022

While paying taxes is a patriotic duty, you shouldn't have to pay more than your fair share. Tax liabilities can build up quite fast if you prepare your taxes incorrectly. They can drag both personal and business finances down. A good tax preparation service can help reduce your tax burden at the local, state, and federal levels. You exploit legal loopholes to bring down your tax liabilities in income, employment, and capital gains taxes. How can tax planning help you lighten your tax burden?

1. Take Advantage of Legal Deductions

Legal tax deductions are tax breaks allowed by the government. While some are available to everyone, others are only open to certain taxpayers. Legal deductions can lower your taxable income, which will, in turn, reduce your tax burden. Examples of legal deductions include:

• Education expenses

• Medical expenses

• Retirement savings

• Home office expenses

2. Invest in Employee Welfare

Businesses that invest in their employees can enjoy major tax benefits. While there is no official list of employee welfare programs that qualify for this deduction, it is generally accepted your tax preparation can include:

• Health insurance premiums

• Dependent care costs

• Employer-sponsored retirement plans

3. Contribute to a Good Cause

Giving to charity can help you save money on your taxes. You can deduct up to half of your adjusted gross income as a charitable gift if you're an individual taxpayer. If you are a business owner, you can deduct a portion of your profits for charitable purposes. It aims to improve your company's reputation while cutting your tax burden.

4. Make the Most of Credits

Tax credits can be used for both personal and business taxes. They lower your liabilities on a dollar-for-dollar basis. Here are examples of how tax credits can help you lower your tax bill:

• Health Coverage Credit – You can claim this credit on your federal taxes if you don't have health insurance.

• Retirement Savings Contributions Tax Credit – If you contribute to an IRA or 401(k), you can claim this credit on your taxes.

5. Avoid a Tax Audit

The federal Internal Revenue Service (IRS) picks certain taxpayers for audits randomly, but they can also pick on you if they notice some red flags. An audit can put your business in an awkward position, especially if you owe back taxes. Here are some tips to avoid raising those flags:

• Avoid making large cash transactions or hiding them

• File the right forms and pay the correct taxes

• Keep proper records

These are just some of how tax preparation in business can bring down your tax liabilities.

Are you worried about your tax position? Talk to a tax preparation service about strategies to lighten your tax burden.