There are no great secrets where tax planning and tax cutting are concerned. Then again, most people do not even employ the basic tax strategies that they should. Especially the all-too busy entrepreneurs out there. The principles around which all tax-cutting strategies revolve can be reduced to six crazy simple basics. Here is a countdown of the top six:
6. Income splitting. Taxes are reduced for the total family unit by shifting income among several family members or legal entities in order to get more of the income taxed at lower rates.
5. Shifting income. Certain kinds of income (bonuses, dividends, and year-end payments, for example) can be shifted from one year to another in order to have the income fall where it will be taxed at lower rates.
4. Shifting deductions. As with income, certain deductible expenses can be paid in one year or the next in order to place them where the tax benefit will be greater.
3. Deferring tax. Putting your money into certain investments or making pension plan contributions allows you to defer the tax on some income until some future year.
2. Tax-deductible expenditures. Certain expenses may be tax deductible if you meet specific requirements in the Tax Code. Structuring your affairs to obtain a tax deduction for things you enjoy (within stringent IRS guidelines) is an example of this tax-cutting technique.
1. Tax-exempt investments. You can select investments that produce income that is exempt from either federal or state income tax, or both. Many mutual fund investments, for example, have tax advantages.
Become aware of how tax law changes are affecting you, and make adjustments necessary to lessen the impact of them on your earnings.
Boom. There you are. Admit it, you do not spend more than a little bit going over your taxes. Change that now. Discuss these very simple techniques with your tax professional ASAP.
R. Kenner French, the author, has written two books of interest to entrepreneurs (has another on the way), speaks all over the country, and lives on an island — Bainbridge Island, WA. He has been with VastSolutionsGroup.com since 2006. He is now in charge of bringing the company into the New Tech World, establishing it as an AI technology platform helping entrepreneurs lower tax and increase retirement income.