It’s hardly an enjoyable task, but these tax tips should make it easier to decide what and what not to put in those forms. There may be some slight rule variations where you’re located, so check with the authorities first.
Non Taxable Income
Keep in mind that a worker’s compensation insurance isn’t taxable. The same is true with the benefits for veterans and allowances from the various military branches.
Create a Company
There are many advantages to doing this. The first is that the rate for retained profits is under 25% for the initial $25,000. Another benefit is that you can set up your own reimbursement plan for medical costs. The company can also be used for deductions on car expenses.
Other good tax tips are to exchange services with another person or company. This will reduce the amount you’ll have to pay to the government.
Avoid Permanent Employees
Having a permanent workforce means paying a ton of money for social security and health care among others. A better alternative would be to use employed people, contractual workers or other contractors. If possible, consider outsourcing your work. This will save a lot in terms of over head costs and taxes too.
Use the LIFO Method
LIFO means last in, first out. This is very useful if you have inventories of some sort. By using this method to assess their worth, the nondeductible will be the oldest ones. You can get deductions on the newer items. This tax tip will translate to a lot of savings.
Investors or players in the stock market should know this. Basically the law says that if you buy shares in a company that goes under, a deduction of $50,000 against income is possible. If it works out you can also get a capital gain when you sell the stock.
To avail of the capital gain, the property has to be yours for more than half a year. A day less and you won’t qualify. For more information, you should contact your financial advisor for details.
Keep an Eye on Congress
The economic situation dictates the tax laws in the country. Tax cuts or increases depend on what happens in the legislature, so be aware of the news. You really can’t do much about it if the law is passed. But as a tax tip, it’s important. It gives you time to prepare and you won’t be caught off guard.
If you’ve got a corporation, liquidating rather than getting salary dividends makes more sense. In a 5 to 10 year investment, you can get up to $100,000. This comes after paying the 22% tax after the first 12 months.
Don’t forget to deduct. The rules may be strict, but for small ventures (below $35,000), getting an audit is not likely. Just cite a good reason.
One final advice: don’t dodge or cheat. What you think you can save will cost more when (not if) you get caught. By keeping these tax tips in mind, you’ll save on costs without getting into legal trouble.