How To Lower Your Tax Bill (Without Slashing Your Cash Flow)

Updated for 2022

In my first few years in business, I turned a good size profit. That was the good news. Unfortunately, there was a catch to the early success that I had. I didn’t realize that with a good size profit there is often a good size tax bill. A tax bill, it turns out, that I wanted to slash immediately.

Back then I wasn’t as savvy about the ways of the IRS, and that tax bill was quite the shock. But there was more to it than the “amount owed” number at the bottom of the form.

It triggered my deep seated fears around money. Fears that I thought were resolved, but learned otherwise.

The moment I saw that tax bill, I immediately SHRUNK back down. Subconsciously I believed that the tax bill was a consequence of success, and if this was what happened when you made a lot of money…

Yes, that’s right. I actually made a conscious choice to make LESS money just to avoid paying higher taxes. I chose to be LESS successful because I was afraid of a bigger bill from Uncle Sam.

I’m not the only one who has ever felt this way, either. We all want to pay less come tax time. Usually this is one of the first goals my new clients have. People come to me wanting to slash their tax bill (usually too late in the year), and that is priority number one.

But after years of experience, both personal and professional, I know now that there are more reasons for avoiding a high tax bill than just wanting to keep more of your money.

Some of them come from long-standing unresolved emotions around money. Things like fear and anxiety or guilt and shame can be major money triggers (more on this hot topic later). Many of us aren’t even aware of these fears until faced with a big-time money debacle (like a five-figure tax bill).

People do crazy things to avoid paying the IRS more than they need to. My answer back in the day was to make less money.

Now, this begs the first question…

How far should you go to lower your tax bill?

We all want to save on taxes. But before we can implement some BIGGER strategies, we need to get grounded in what blocks we are facing. From there, you can determine what the best practical tax-saving strategies will be for you! If you have the cash flow to reinvest in your business, here are some really strategic ways to accomplish this.

Now, if you are looking to cut your bill without cutting down cash, read on!

To create your customized tax strategies, start with these three basic questions:

What are your personal goals in the next two to five years (and what do your numbers look like)?

If you rely on your self-employment income, make sure that you know your numbers. First, dig deep into your QuickBooks and know where you stand financially right now. Know that you will need profitable P&L reports for at least the next two years to qualify for any kind of loan. Then, know your cash flow. Being clear on where you are now is key to creating a successful tax-saving strategy. In this case, you may not want to lower your income (AKA Tax bill) to show you have a strong history of profits.

How much are you willing to spend in order to save?

Outside of a few of the suggestions below, a majority of tax-saving strategies require you to invest money into other outlets to save money on taxes. This solution requires you to have good cash low. If you have the cash flow and are looking for options, check out some creative ideas here.

How do you feel about taxes?

If you have anxieties or fears around taxes, some money healing might be in order. This is a good time to bring awareness to your money emotions, and focus on healing the negative ones.

These are the basic questions to ask NOW so that you can avoid a potentially large tax bill in the next year. Use them proactively to heal your mindset, create a proactive tax strategy for you.

If you are ready to implement (or want to create a plan for next year) here are some tax savings tips:

How To Lower Your Tax Bill (Without Slashing Your Cash Flow):

Track your mileage

If you want to get a tax deduction without compromising your bank account, be sure to log your legitimate business mileage. If you are an LLC you can take this deduction, if you are an S-Corp you can be “reimbursed”.

Keep your receipts

Did you pay for some business expenses out of your personal accounts or with cash? Be sure to record these transactions. Sometimes you might use a personal credit card or the available cash in your pocket for business expenses. If you do, be sure to record these receipts as business expenses. Because cash never hit your business accounts, it won’t show up as an expense on your P&L report. So keep your receipts! You can add these expenses into your books and doesn’t count against cash flow because the money was already spent and the expenses minimize your net income.

Claim your home office

Be sure to write off the expenses associated with your home. These include expenses such as utilities, internet, property taxes, casualty insurance premiums, homeowner association fees, security monitoring, depreciation for a residence that you own, rent, and so forth. If you are an LLC you can take this deduction, if you are an S-Corp  The S corporation can pay you for the costs of a home office under an “accountable” plan for employee business expense reimbursement.

Open a retirement account from your business

Do you contribute to a personal IRA account? Switch to opening up a retirement account from your business instead. Because if you are going to invest the money anyway, explore the options you have as a business owner (and you can contribute more than the personal annual IRA max contribution which is $6,500 in 2023). These options include switching from contributing to your personal Traditional IRA Account to a SEP/SIMPLE/401K through your company.

Payroll

If you’re already paying contractors that can now qualify as employees, OR electing your LLC as an S CORP to pay yourself as an employee (see my blog on this first and consult with your local CPA before making any changes) It can save business owners 7% on employment taxes on owners draws you’d already be taking. It also reduces some of the estimated tax payment burdens throughout the year. Yet another win-win! If you are converting contractors into employees there is slightly more overhead, and responsibility but it just may be the business move you need to get to the next level anyway, and it reduces tax liabilities.

As an S Corporation, you qualify as an employee of your own business. This means you can take certain qualified fringe benefits. Knowing what they are can give you a boost in income without the income tax. BOOM.

Benefits

What benefits are you personally paying for that you can run through your business? Under some entity types you can run your health insurance, Long term care payments, fringe benefits (like gyms, cell phone, etc) This is the magic of being a business owner.

So there you have it! Three simple mindset steps and six basic strategies to slash your tax bill without slashing your income.

Now I want to hear from you. Are you scared of a high tax bill at the end of the year? Leave me a comment and share your questions about proactive tax strategies. Let’s take the fear out of filing for good.

Until next time,

Love, Light, and MONEY, Honey…

Kaylee

P.S. Looking for a few more specific ways to cut your tax bill? Check out my article on maximizing deductions through charitable giving and maximizing deductions for parents with kids.