The amount of income tax you may be liable for depend on how much you earn during the year. Now that we are in the latter half of the year, it is advisable for individuals and businesses to start considering ways to reduce their income tax for the year.
Reducing Individual Income Taxes
As an individual taxpayer, here are some deductions that may help lower your 2017 income tax liability.
- Contribute to an IRA: Saving money for your retirement is important. Contributing to your IRA can save you money on your income taxes. The money that you contribute is a pre-tax contribution, and it will lower your total taxable income.
- Flexible Spending: If your employer offers a flexible spending plan, you should take it. Flexible spending plans are pre-tax plans that cover certain expenses such as child care and medical expenses. These plans allow you to reduce your tax bill by using money that you were planning to spend anyway.
- Give Back: Making charitable contributions is a great way to lower your tax bill. If you have the money to donate to charity, great. If not, you can give something other than money. You can donate books, clothing, and other household items and you can receive a receipt to submit at tax time. While volunteering your time is not tax deductible, the expenses necessary to volunteer are. For example, if you are volunteering at an event and you need to travel, your travel expenses can be deducted.
Reducing Business Income Taxes
For businesses, there are opportunities to lower income tax year round.
- Offer a Retirement Plan for Your Employees: It is a good idea to offer your employees a retirement plan. The contributions that you make as an employer are tax-free. Also, the assets in the plan grow tax-free.
- Donate Inventory: If you have any inventory that has not been used or has gone unsold, consider donating your unsold inventory. Donating extra inventory will lower your business’ tax bill at the end of the year.
- Create an Accountable Plan: If you reimburse your employees for their out of pocket work-related costs such as travel, entertaining clients, etc., an accountable plan can save you money. This would allow you to reimburse them without treating it as income. This will save you money on income taxes and payroll taxes. Starting an accountable plan is beneficial for you and your employees.
- Home Office Deductions: If you operate your business from your home or have a home office, you may be able to take certain deductions such as deducting home office space.
- Cash Basis Operations: If your business operates on a cash basis, at year end you may wish to consider delaying billing so that income is received in the next calendar year.
If you have questions about how to lower you individual or business taxes, contact our knowledgeable and experienced CPAs at (925) 933-2626 or, email us at info@winttercpa.com. We will help you determine the changes you can make today to help you save for tomorrow.