Practical Strategies To Reduce Tax Liability (That You Can Implement NOW)
Updated in 2022
Is it too soon to start talking about next year’s taxes? I know, You’re probably busy enough getting through THIS tax season right now, never mind what your tax bill might look like this time next year. Why should you think about how to reduce your tax liability for next year?
But the truth is that when it comes to taxes, it’s always a good idea to be thinking about next year. Investing a little bit of time now can save you all kinds of time, headaches, and money next year. And one of the things to think about is how to reduce your tax liability without sacrificing profits.
On our previous post, we talked about the unproductive things people to to slash their taxes (like slashing their income to avoid a lower tax bill). Then we got into the helpful shifts in mindset and the practical strategies to help you minimize your tax bill without cutting into your cash flow.
Now, let’s talk about practical ways to reduce tax liability without reducing your profits!
Here’s the thing. We want to keep you on the path to GROWTH. You don’t have to shy away from large profits for fear of a sizable bill from Uncle Sam. So I’m sharing some tax strategies that can help you plan for both more profits and fewer taxes next year. That means knowing how to balance taxes and profits, and how to reduce your tax liability.
Let’s jump right in, and I’ll use my own business as an example (because everything I share here on the blog are the tips and tricks I’ve used myself!).
1:Know your cash flow, and what direction it’s likely to go.
Recently I did an analysis that allowed me to project my cash flow for the upcoming year. Turns out that I’m looking at a rather large profit line (that’s the good news). Of course, that also means a bigger check to the IRS (the bad news).
Now, here’s the REALLY good news. I decided to be proactive about my tax situation this year and found ways to layer in specific tax strategies. Strategies that I could put in place as my business grew and as I hit specific income milestones.
That’s the VERY first step. Know your cash flow, and what direction it’s likely to go. Then decide the tax-saving strategies that will work for your specific situation.
Now, what specific tax-reducing strategies can you implement for your business? Let’s check out some options below!
2:Reinvestment back into your business.
In another blog I talk about ways to reduce your tax bill without reducing your cash. In this blog I want you to review your business and ask yourself where you could use an upgrade. Increasing your expenses or overhead isn’t always the best step to reducing your tax bill, BUT if you have the cash flow and are looking into items that you need to upgrade anyway, this is the best time to do it. Computer 6 years old? Great! time to upgrade. Website out of date? Perfect time to launch a new website this time of year. Eyeing that pretty new bookshelf to finally round out your home office? Boom! Purchased.
3:Shift Your ROI (Return On Investment) To The Positive Side (Automate & Delegate!)
Finding ways to upgrade your lifestyle as the CEO (not the “Everything Entrepreneur”). As you grow your business and it becomes more profitable you will see the need to protect your time, time is limited while money is not. Look for ways you can create more automation and delegation. Maybe this is the year you hire an Assistant, or purchase that software that can make your life 10x easier, or even purchase a really great CRM system!
4:New Product Launch or Research & Development
Thinking of trying out a new product or service? Or maybe you want to do some research on a possible new product or service. This is a great time to test this out! The product will launch in the New Year BUT you can take the expense THIS year. Translation? This project will lower your taxes this year and boost your income in the next. Gotta love that, right?
5:Work On Your Own Education
What skills would you like to refine next year? I invested in 80 hrs of CE credit courses AND a Financial Analyst Certification course. I pay up-front to get the deduction and then schedule in my learning time throughout the year. Investing in my education is a top value for me, so I have to give myself a budget or else I’ll spend everything I have haha
6:Protect the Assets You’ve Already Built
The bigger we grow the more exposure we have, a great way to reinvest in your business while adding value is getting insurance. There are various types, but most need general liability at the minimum. Ask your insurance broker which type they recommend for you and take a risk assessment and find where are you exposed to risk and how big is that potential risk? Contracts need updating or don’t have a Buy Sell agreement in place? Hire a contract lawyer to review!
Not sure where to start? Here’s an action step you can take today...
Get an idea of your projected cash flow for the year. Then grab a pen and paper and brainstorm a few ideas to minimize your tax flow utilizing some of it towards the above.
Now, which strategy do you intend to implement first? Leave me a comment and let me know!
Until next time…
Love, Light, & Money, Honey.
Kaylee