As we turn the page on the calendar it’s always a good idea to make sure you’re wrapping up the old year right and getting the new one off to a great start. We know we have to pay taxes, and we may even appreciate the benefits we get from handing over our money to the government, but we owe it to ourselves to make sure we don’t hand over more than we’re required to by law.
Important disclaimer: While many of the following strategies can help you reduce your tax liability, you should always consult with a tax expert before making any changes. Tax law changes frequently, and you need the most current information. That said, here are strategies that have worked for me and many others.
1. Max out your retirement contribution
401k, SEP, or Roth IRA…no matter what your form of retirement plan, setting aside all the money you can lets you defer paying taxes until later in life, when you’re likely to pay a lower rate. Not only are you building your nest egg, but you’re also reaping tax benefits.
2. Build up your HSA (Health Savings Account.)
Typically, contributions to HSAs roll over indefinitely, and your contributions are tax-free! Sure, you will have to spend all of your HSA on medical expenses, but allowable expenses may be broader than you realize, and medical bills are something we all face eventually.
3. Leverage your losses
Deducting losses from your investments can soften the blow from decisions that turned out differently than you expected. Not only can you deduct losses from stock purchased in publicly traded companies, but your own business may provide you with deductions as well.
4. Defer capital gains
If you’re considering selling off large amounts of stock for profit, think about holding onto those shares until the new year. You’ll move the tax liability out of the year that’s ending, and then you’ll have an entire year to find ways to offset the gains.
5. Defer deposits
If you’re looking at big year-end receipts, consider holding onto those deposits until after we turn the calendar page. Just like deferring capital gains, you never know what the future holds. You may encounter losses or expenses that help reduce the tax burden from huge deposits.
6. Donate to charity
This strategy both reduces your tax liability and makes the world a better place! Find worthy causes that speak to you and improve your community, and donate what you can afford. Make sure you get receipts for your charitable donations.
7. Combine business and vacation travel
This one’s my favorite! I travel a lot for my speaking engagements, and anytime I can, I build a few extra days into my itinerary for fun. Since work travel incurs legitimate business expenses, I can deduct a portion of the costs for my vacation. Make sure your records are clear about which portion of expenses were business and which were pleasure.
As hard as you work for your money, you should put a little effort into making sure you keep all you’re entitled to. A good accountant can help you maximize profit and minimize tax liability. Resolving to pay less in taxes makes good business sense and starts your year off right.
Mike Michalowicz (pronounced mi-KAL-o-wits) started his first business at the age of 24, moving his young family to the only safe place he could afford – a retirement building. With no experience, no contacts and no savings he systematically bootstrapped a multi-million dollar business. Then he did it again. And again. Now he is doing it for other entrepreneurs. Mike is the CEO of Provendus Group, a consulting firm that ignites explosive growth in companies that have plateaued; is a former small business columnist for The Wall Street Journal; is MSNBC’s business make-over expert; is a keynote speaker on entrepreneurship; and is the author of the cult classic book, The Toilet Paper Entrepreneur. His newest book, The Pumpkin Plan has already been called “the next E-myth!”