I still remember the first time I filed taxes for my business. In addition to having no idea what a write-off really was, I also didn't worry too much about guessing on the numbers. A few government audits later, I discovered what it really meant to do things the right way. Over the years, I have met lots of business owners that weren't too worried about fudging the numbers, and nearly all of them have run into problems. Proper accounting is important, which is why I created this website dedicated to business accounting. I know that if you learn the right way to do things and focus on integrity, your business can avoid a world of problems.
Filing taxes can be an overwhelming, stressful, and difficult process for many people. If you are like many others and dread tax season because you're always paying in, it doesn't have to be that way. In fact, there are some things that you can do to help reduce this risk. With a little bit of tax planning now, you can help to better control your tax liability come filing season, which might help you to avoid a large tax bill to the IRS. Here are a few things to consider as options for your tax planning purposes.
Adjust Your Withholdings
If you work a traditional job, you were required to fill out a W-4 for your tax withholding. This form details your dependents so that your employer knows how much money to withhold from your paycheck for your tax liability. However, sometimes your tax filing isn't as straightforward as it seems and the reduction to your withholding for those dependents leaves you owing the IRS at the end of the year.
As a result, you can increase the tax withholding (thereby reducing your year-end shortfall) by reducing the number of dependents you claim on your W-4. All you need to do is reach out to your employer's payroll department and ask to update your W-4.
Contribute To Tax-Protected Funds
There are a series of different funds that you can contribute to and reduce your tax liability. For example, 401K contributions typically happen pre-tax, which reduces your taxable income. In addition, you can look into IRA contributions, flexible spending accounts, 529 funds, and health savings accounts. These funds usually allow for tax-deductible contributions, and many of them also offer you tax-free withdrawal benefits, too. Consider your contribution limits for these accounts and what that might do to help you minimize your tax liability for the year.
Understand The Available Credits And Deductions
Another key part of successful tax planning is understanding the available deductions and credits for each tax year. The sooner you understand these each year, the easier it is for you to plan which ones you might be eligible for and to ensure that you have the necessary documentation to justify them. Remember that, if you're ever audited, you'll have to be able to show that you rightfully claimed those credits and deductions so keep all of your records.
These are a few key elements for tax planning purposes. Talk with a tax professional near you today for more guidance, support, and information.
Share6 May 2022
