Legitimate Ways to Reduce Your Taxable Income

Taxes are undeniably some of the most crucial components every entrepreneur encounters and must handle on time so they can avoid penalties, interests, and surcharges. When it’s time to file taxes, some business owners rush to find a way to reduce their taxable income. This is because taxes can eat up a huge chunk of their income, and they want to keep more money in their business.

Cutting back on your budget is not the way to reduce your taxes. In fact, this method might only increase your tax liability once an accounting service provides you with a financial report. You should know that there are legitimate ways to reduce your taxable income. Here are some of the strategies you can use:

How to Reduce Your Taxable Income?

Creating a Tax-Friendly Business Structure

Your payout structure entails the overall cash flow and taxes in your business. This is why it is vital to create a design that will minimize the amount of taxes you pay. The easiest method is to consult your accountant to determine which system will allow you to reduce your taxes.

A good example of such a business structure is the S-corporation. This structure is considered a pass-through entity, helping prevent double taxation. The advantage of this structure is that you can deduct certain expenses from your taxes, such as health insurance, home office, travel expenses, meals, and entertainment.

Saving Taxes with Reimbursement

Did you know that IRS policies are liberal regarding reimbursement plans? In fact, under the accountable plan, all allowances or reimbursements paid for employees on any job-related travel are excluded from their wages. Furthermore, it’s not subject to withholding. This is because the IRS considers some reimbursements as a salary paid to your employees.

For instance, if your employees have to travel to attend a job-related conference, have to go out of town to meet with clients, or have to buy office supplies, you can reimburse them for their expenses. 

Deferring Some Expenses and Balance the Taxes

Working with a wide range of companies can be unpredictable since every business has different tax and accounting needs. However, you can still minimize your taxes by finding a point of agreement. In fact, accounting services see this as an opportunity to lower taxes by deferring some expenses.

This is because deferring some expenses can help you lower your taxes. For instance, you can delay the purchase until the next tax year if you have to buy office equipment. By doing so, you can lower your taxes by the amount you would have had to pay in taxes if you had purchased in the current tax year.

Another way to lower your taxes is to balance your taxes. You can do this by making sure that you have the same number of deductions and expenses.

Final Thoughts

If you are a business owner looking to reduce your taxable income, several options are available. You can use deductions and credits, defer payment, or invest in tax-advantaged vehicles. Each choice has guidelines, so it's crucial to speak with a tax expert to determine which is ideal for you. You may also use accounting services to concentrate on operating your business while leaving tax planning in the hands of experts.

Acuff Financial Services is a company you can trust for comprehensive and high-quality accounting services, to ensure your business will reduce taxable income. Contact us today for more information!