Everybody wants to lower their taxes, but you might not be aware of how to lower your taxes in ways that work. It’s important to consider the legal aspects of lowering taxes because it’s hardly worth attempting if the methods are against the law. The IRS is more vigilant than ever before and attempts to lower taxes in unsavory approaches will be flagged. Here are several ways to lower your taxes with practical and legal tax reduction strategies. This way, you will have access to breaks and deductions that will benefit you without having to worry about treading into legally gray areas.
Various Business Expenses
If you’re self-employed, you’re probably eligible for several tax deductions that you may not be aware of. Costs directly related to managing your business are often able to be deducted when you sit down during filing season. Examples include (but are not limited to) business-related travel, the service fees associated with hosting your website, office supplies, a portion of your home office’s internet service, and the shipment of products or other business material.
Keep records of these expenses and present invoices and receipts to your tax preparer for assistance. This way, there’s a system in place to prove that these expenses were incurred, and there won’t be a big challenge when it comes time to file your income tax return.
Home Office Deduction
If you’re a small business owner and you do some of your work from your home, consider claiming the home office deduction. If you’ve got a section of your home that you use specifically to perform work for your business, you can deduct a percent of your rent or mortgage because this space is used as a home office. Generally, the deductions are based on size. For example, if you have a small room or cubicle in your home, that space would take up a percentage of your home’s size, and that percentage can be claimed as your home office deduction.
For example, if your home-office is a room that amounts to fifteen percent of your home’s entire area, then you’re entitled to deduct fifteen percent of your rent, utilities, insurance, repairs, and maintenance.
Business Trips vs Vacations
If you’re asking yourself how to lower your taxes, it would be wise to look at the way you travel. If you’re planning on taking a family vacation but you also have business trips that you’ve got to consider, combining your trips might benefit you.
If you combine your vacation with a business trip, you can deduct a percentage of the expenses you incurred from the business trip if they were not reimbursed. Subtract the money that you spent on the business portion of the trip from the total expenses you incurred. This may include plane tickets or lodging pertaining to your business activities.
Not only does this method bring about the opportunity for a deduction, it also saves you money while you travel. It’s better to pay for a single trip to your meeting and vacation destination, rather than paying for two separate trips. It’s a win/win situation.
Health Savings Accounts
You might be wondering how to lower your taxes in a way that benefits you in the long run. If you have a high-deductible medical care plan, you might want to consider contributing to a health savings account. This way, the funds that you don’t use on medical expenses can continue to grow over time and remain tax-free. This works similarly to contributions made to a retirement account.
Contributing to a retirement account is another way to reduce your taxes, and benefit you over time. Most of these contributions will allow you to make deductions of the amount paid into the account from your income, which reduces the total of your income. Like the health savings accounts, retirement accounts grow and remain tax-deferred until you retire.
How to Lower Your Taxes with Vehicle Mileage
Vehicle mileage is often a tax break that people ignore or fail to report due to being unsure about the way this break works. Vehicle mileage is a tax-deductible expense if you drive your own vehicle for your business and you are not reimbursed for it. While you’re not able to deduct the cost to commute from home to work, you are allowed to deduct the mileage from business-related driving.
Not only do charitable donations encourage the spirit of generosity and benefit various organizations designed to do good in the world, they’re tax-deductible. Whether your donations are made by payroll deductions, cash, or check, keep track of your receipts. Make sure that you have a paper trail to prove that you made the donations, especially if they add up to a significant amount of money. Making several donations can compound to a more sizeable deduction.
Even if you plan to donate clothing and other items rather than money, estimate the value of your donation and ask for a receipt when you drop your items off at the charity of your choice. Clothing and goods still count as donations.
Travel and Lodging
If your business requires that you travel more than 100 miles away from home, and if you have to stay overnight at a hotel during these trips, you are able to deduct business travel from your taxes. You can count lodging and food, as well as trips taken by bus, plane, train, or car if the travel was related to your work.
Lowering your taxes doesn’t have to feel like you’re participating in something dubious. There are practical, easy ways to reduce your taxes and stay on the right side of the law. As a small business owner, educating yourself about the various tax breaks available can benefit your growth and point you toward breaks you’re legally entitled to for years to come. Be sure to ask your tax preparer about these and other legal tax reduction strategies.
If you’re in the market for a reputable tax firm, consider West Austin Tax for your income tax questions and services. You can visit their website for information, video resources, or to schedule an appointment with one of their professional CPAs. You can also call (512) 330-9400 for more support.
*West Austin Tax is not a CPA firm.