How to reduce taxes legally - tax reduction strategies : Bad Credit Advisor

How to reduce taxes legally - tax reduction strategies

How to reduce taxes legally becomes the most popular topic for many, starting right after new year. This year Vancouver Games did take some of your attention away. Now that Olympics are over, you need to shape up. Frankly, you should worry about your tax reduction year around. Well, worry may be too strong of a word and too much of it can be detrimental to your health. Planning and looking for legal ways how to lower your taxes is the better way to put it.

There are many, may be too many tax reduction strategies out there, and some of them sound quite confusing. But by far the best long term strategy to reduce your taxes legally is to take a systematic approach, review all feasible ways that can help you lower taxes and implement the ones which will maximize you deductions. Here we are going to touch three, may be four most valuable ways and leave the rest and deeper details for later as there are so much to talk about. But you have to understand that having your small business is the key to any significant tax reduction and ultimately, the road to riches. And yes, read the disclaimer in the end of this post.

Reduce taxes legally - incorporate home based business
This is the best of tax reduction strategies available. While you do not have to form a corporation to run a home business, incorporating it offers many benefits which we will discuss in a separate post. For now, you need to understand the simple and unpleasant fact - there are two sets of tax laws in this country. No, not the one for the rich, the other for the poor, but rather the one for business owners or employers, and the other for workers or employees with W-2 forms. And it does not matter if you are an employee making $150,000 a year salary. Yes, you are better of, at least for now pending our government tax increases, than a worker who makes $30,000 a year, but as long as you are a salaried employee, you are still very limited what you can deduct to reduce taxes legally and save a bundle. You only have the IRA, possibly 401(k), mortgage interest and property taxes on your home, charity donations and standard deductions that the IRS allows for everyone.

On the other hand, laws for small and home based business offer a whole plethora of additional tax deductions. As a small business owner with proper documentation you can legally reduce taxes by writing off more of your house, hire and write off your spouse, business vacations, cars, business meals and more, all in addition to the tax deduction a worker has. The savings because of these additional tax deductions can be so huge, it is simply hard to understand why everyone does not have a home based business, incorporated or not. We are going to talk about more reasons, types of businesses and corporations in upcoming posts. I am still warming up.

How to reduce taxes legally deducting fun expenses

I know that this section will be quite popular with my readers, so from the start I must warn that you must take every precaution to document your fun activities and ensure their tax deductibility, so when the mighty IRS comes after your with an audit, and sooner or later it will, you can prove that this tax reduction strategy was rightfully used. This write off works for self-employed or small business tax payers as well as for regular W-2 employees whose job requires to entertain perspective hires or subordinates. Again we will look at depth at this way to reduce your taxes, but to give you an idea, a recruiter who wants to convince a hot shot Java programmer to join his company over a nice lunch or even dinner in Morton's, should be able to write off at least 50% from the bill. You can also invite that top salesman whom your firm is trying to lure from its competitor to play few rounds of golf and deduct quite a bit as well, albeit you may have to convince the IRS that playing golf is conducive to a business discussion which is what it requires. We will talk about details, receipts you need to keep, amounts and other very important things in further articles.

Your vacation is ripe for tax deduction
That is, if you can prove your vacation was a business trip. Hahaha, but it is not a laughing matter, what you want to do is to combine business with pleasure. Within the limits of course. If you are not sure or consider this strategy to be rather convoluted, it is better to leave it alone. I am going to give one main point right here - sleep is important.

You see, by definition of the IRS, to be on business travel, you must travel from home, overnight, or for a period of time that is long enough to require sleep. So if live in Los Angeles and fly to Phoenix in the morning, only to come back in the evening, you would not be traveling on business, according to the IRS. The only expense you may write off is the transportation costs of getting to the city. Basically, your best defence against auditors it to sleep in hotel.

In brief, and we will explain the details some day, believe me, you can do the following things,
- hire your spouse and go on business conventions and seminars together
- use business car for family travel
- cover 300 miles a day toward your business destination
- take business related courses on U.S. cruise ships
- care take your rental property
- visit colleagues to improve you skills and exchange ideas
- take out of town continuous education classes
- go for job interviews all over the U.S.
There are many more incredibly cool and perfectly legal ways and strategies that will reduce your taxes drastically. I have to reiterate again we will look very deeply in those.

Reduce taxes using your car for business
This is by far the IRS favorite. To audit, that is. Being such a big-ticket item, your vehicle is simply tempting you to cut few corners here and there, and to abuse this tax reduction to the point where the IRS will pounce with all its might. Yet, used with knowledge and carefully with proper paperwork support, writing off the car is one of the strongest strategies that helps you reduce taxes legally and by quite a lot.

The knowledge is the key. There are so many very legal tricks I have found after exhaustive research, that after discussing those with my accountant whom I consider very knowledgeable and experienced, I decided to dig even deeper. So this topic deserves a separate post and a very large one. Which I am going to put up and hopefully soon. For starters, I am going to have few good pointers right here, so you can research on your own, without waiting on me. After all, you have all year to prepare for 2010 income tax, since most of the information here are for business owners and business taxes are due by March 15. Unless you can get an extension.
- buying business vehicle is almost universally better than leasing it
- use more than one car for business to reduce taxes even more
- certain vehicles will reduce your taxes by far more than others
- most tax payers have no clue about all allowable car related write offs
- why you are never to donate business vehicle
- how to maximize business mileage and teach your CPA about it
I think it is enough for now. Because income taxes, your money, the IRS and everything related to them are rather sensitive topics with many long reaching implications, I am going to put this disclaimer. I have put similar before, but nevertheless ...
I am neither an accountant nor a financial planner. I have no formal financial education, but I remember a very smart engineer I worked with long time ago. When someone asked him a question or two, he would answer politely. Then he would grow inpatient and snap "read the book, that what I do". He told me that more than few times and I finally decided he was right. So I started reading and never stopped. Sort of like Forest Gump, only he was running, and it took him quite far in that movie. So what I am disclaiming here is that take the information written on my great site for what it is, always do your due diligence and consult a qualified accountant. Do not blame Bad Credit Advisor for your own mistakes.

Look for upcoming informational posts with more details and strategies that will certainly show you more ways, how to reduce taxes legally.

Fri Mar 5, 2010 10:03AM by Tony | More in Taxes | Comments (0)

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