Reducing your tax liability, increasing your cash, and decreasing your payments to tax authorities are all good things to include in your list of goals. Yet making them happen is often easier said than done—especially if you’re self-employed.
When you own a 1099 business, you may feel like you’re going 24/7. You barely have time to respond to your clients’ emails much less think through your tax strategy. The good news is, there are plenty of small things you can do to pay less tax and keep more cash.
Here are a few of the ways you can take advantage of tax laws to reduce your tax liability.
If you regularly work out of your home rather than out of an office, you could be eligible for the home-office tax deduction. This allows you to deduct a portion of your rent or mortgage interest as well as your home insurance, utilities, and other costs from your tax liability.
This deduction allows you to deduct what would be the employer portion of your self-employment tax when calculating your adjusted gross income (AGI). This can help to significantly reduce your tax liability.
Depreciation allows you to take a tax deduction over a certain number of years for assets such as vehicles. It can also apply to your home if you qualify for the home-office deduction. Keep in mind there are certain caveats you need to meet in order to be eligible for depreciation.
You can deduct your meals and entertainment expenses—or at least a portion of them—as long as they’re directly related to your business. Examples could include business lunches or dinners with clients.
Expenses related to any training or education programs—that are, again, related and relevant to your business—can be deducted. So, if you’re partaking in continuing professional education or going to conferences as part of your business endeavors, you could potentially deduct these costs.
Depending on your personal situation, there are numerous tax credits for which you could qualify. These include the Child Tax Credit, Child and Dependent Care Tax Credit, and Earned Income Tax Credit, to name a few commonly used credits.
There’s also the Qualified Business Income (QBI) Deduction, which came about with the Tax Cuts and Jobs Act of 2017. Depending on certain thresholds and limitations, you could potentially deduct up to 20% of your QBI.
This is one most people don’t think about. If you set up a retirement account, such as a solo 401(k), simplified employee pension (SEP), or IRA, you can make contributions to these accounts as a way of reducing your taxable income.
Here’s another benefit to having health insurance: You can often deduct your premiums (or a portion of them) for yourself, your spouse, your dependent(s), and potentially others.
In addition to the deductions listed above, you can deduct other expenses that could be categorized as an ordinary and necessary business expense. Examples include expenses for supplies, equipment, advertising, and even travel. If you’re already taking these types of deductions, it might be worth asking: What could you be missing?
Putting even a few of these strategies into practice could help you reduce your tax liability. Before you do, however, it’s important to make sure the deduction, tax credit, or tax planning strategy applies to you. Many of the ones listed here include certain thresholds and limitations.
The tax and wealth experts at InTandem can help you determine which of these actions make the most sense for you. Together, we can set a plan for how you’ll pay less tax—and effortlessly keep your wealth intact.
To learn more about how we can make your life easier, contact us today.