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4 November, 2022

7 Ways to Cut Your Income Tax for Year 2022

As a small business owner, you probably find paying taxes to be an impediment to keeping a healthy bottom line. It’s only natural to want to lower your tax burden as much as possible.

You may be surprised to learn that there are actions you can take to reduce your business income tax so you can devote more money to bolstering your bottom line. As you’ll see in this article, by implementing some, or all, of these seven basic strategies, you could potentially limit your tax liability for the 2022 tax year.

1)   Employ a Family Member

An easy and straightforward way to lower your taxes in 2022 is to hire a family member. The IRS allows for numerous options with the possible benefit of protecting your business income from taxes. If you like, you could even hire your kids. 

Small business owners may pay a lower marginal rate or eliminate the tax on the income paid to their children.

For example, if your small business is a sole proprietorship, you don’t have to pay Social Security and Medicare taxes on the wages of a child. You also don’t need to pay for Federal Unemployment Tax Act (FUTA) tax.

However, earnings need to come from legitimate business activities. 

The IRS also allows small businesses the benefit of decreasing their taxes by hiring a spouse. A spouse is not subject to the FUTA tax.

2)  Save Money for Your Business’s Health Needs 

Another way to lower your business tax burden is to set aside funds for healthcare needs. As we all know, medical costs are skyrocketing. So while you may not have health needs now, it is smart to save money for unexpected or future healthcare needs.

You can put aside this money through a Health Savings Account (HSA) if you have an eligible high-deductible health plan.

We every business owner to explore using an HSA. Rising medical costs lead to many dental practice owners searching for lower cost health insurance. Using an HSA can help bothe the business and team members reduce taxes and some associated medical costs. 

 3)  Deduct Travel Expenses 

If you tend to travel frequently, then you may be able to lower your business taxes. Business travel is completely deductible. However, this is not the case for personal travel.

On a business trip, you’re able to deduct 100 percent of the cost of travel to your destination, whether you choose a plane, train, or bus ticket. If you rent a car to get there, and to get around, that cost is also deductible.     

To optimize business travel deductibles, small business owners could combine personal travel with a legitimate business purpose. More good news. Any frequent flier miles earned from business travel can also be redeemed for personal travel in the future.

Contributions to a traditional individual retirement savings account (IRA) can reduce your Adjusted Gross Income (AGI) dollar-for-dollar. However, if you have a traditional IRA, your income and any workplace retirement plan you own may limit the amount by which your AGI can be decreased. 

 4)  Reduce Your Adjusted Gross Income 

Reducing your Adjusted Gross Income (AGI) should actually be one of the initial measures you should take to reduce your business’s tax liability. A lower AGIcan keep your company’s income in a lower tax bracket. Your business could even benefit from more tax credits or avoid additional taxes, such as the Medicare surtax. 

Look at your personal tax returns to find ways to lower your AGI. Mortgages, property taxes, and charitable donations are all itemized deductions you can use.

And don’t forget individual retirement and HSA contributions! 

 5)  Maximize Your Retirement Plan

Using the right retirement plan allows you to gain the largest pre-tax contributions. Bigger contributions to your retirement account will translate into larger tax deductions. This will reduce your overall tax liability. 

But you might consider that the retirement plan you set up many years ago may not be maximized for your business’s current structure. For example, if you have recently experienced a higher revenue stream compared to years past, it might make sense to consider setting up a 401(k) plan and a Cash Balance Plan. 

If you now have a 401 (k) plan, you may benefit by modifying this plan to make sure you can make the maximum contribution every year.

 6)  Use Accountable Plan

You are likely reimbursing your employees for some expenses. By utilizing an accountable plan, it enables you to reimburse your employees for business expenses such as travel without reporting them as employee income.

When you have more employee income, you get to pay more payroll taxes. But by implementing this tax strategy, you’ll be able to reduce your tax liability.

 7)  Optimize Your Automobile Tax Deductions

Automobile tax deductions are particularly helpful in reducing your tax liability. Your team members who travel long distances offer the greatest benefit.

Whether you’re based in the city or a rural hamlet you are likely to enjoy benefits from this tax strategy.

Be sure to also deduct their auto expenses. 

Your employees will surely benefit from using the IRS mileage allowance of 62.5 cents per mile in 2022.

For more details on this mileage deduction and others, look to DrillDown Solution for Expert Tax Planning Services for Your Small Business.

Our tax planning services at DrillDown Solution include helping you figure out what tax deductions your small business qualifies for, and includes potentially deducting the use of your vehicle for tax purposes.

DrillDown Solution delivers a seamless tax planning and compliance process.  As is the case with all of our programs, tax planning solutions are custom-made based on an individual’s needs, wants, and the goals of your business. You can expect your business to greatly benefit from our dedicated team of tax experts, ensuring your tax planning needs are met quickly and efficiently. 

Our Provo, Utah Tax Planning Services are just what your small business needs.

Heather Porter

DrillDown Solution was founded in 2004 and has helped thousands of people save on taxes and achieve their best financial position possible.

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