As you can probably guess, I am a little obsessed with saving my clients on their tax bills. Despite my best efforts to advise against it, I still have clients scrambling at year end to buy things they don’t need and spend money that makes no overall economic sense, in their desperate efforts to reduce their tax bills.
Buying a new car, redecorating your office, or buying a brand new MacBook are all poor financial moves if mostly geared toward lowering a tax bill.
The shrewdest taxpayers instead look for ways to reduce their taxes that don’t use up their wealth or their cash flow. And, this is how I try to steer clients. I have all my interest in doing things that create wealth, not destroy it. You need to keep the big picture in mind.
On November 28th, myself and two other CPAs at Credo will be presenting some very financially wise tax strategies (see this link for more info):
Those strategies will be a little more advanced (though still quite commonly used) and will need more explanation (this is why we are presenting them in person), but here are some others that are fairly easy to implement at year-end:
Carefully evaluate what income and expenses you have in 2016 vs. 2017.
There are a lot of perfectly legal ways of controlling how much income you have in 2016 vs. 2017. If you are going to be in a high tax bracket one year but not another, you really need to see what can be done to shift income from one year to the other. One important factor in this evaluation is whether you are a cash basis taxpayer or an accrual based taxpayer…and, you can potentially switch that for 2016 if it makes sense to do so. Some people save very large chunks of taxes by doing so.
Elect your LLC to be taxed as an S Corp.
If you operate an LLC and don’t file taxes as an S-Corp, doing so could save you thousands. If your LLC makes $200k or more, I am confident that an S Corp election would save you $20k or more…you’ll have to call in to learn how to do this and what your exact savings might be.
Be creative with retirement plans.
SEP IRAs and solo 401(k)s are great, yes, but if you really want to save big time on taxes, look into setting up a defined benefit plan alongside a profit sharing, safe harbor 401k. We’re talking tens of thousands in tax savings.
Register for Upcoming Tax Strategy Seminar
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