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How to Minimize Taxes - Consider these Tax Reduction Strategies for your Business

By Jim Antonilli
Filed under: Taxes Relief         Words in this Post: 408



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One of the most important tax reduction strategies to recognize is that a tax dollar deferred is a tax dollar saved. If you can legally delay paying taxes until a later date, you are saving money because you have the use of that money. For example, whenever you purchase equipment, the IRS allows you to write off all or a portion of the cost as an expense against your income. If you purchase a new computer on December 31 instead of January 1, you can take the expense against income in the current tax year instead of waiting a year to take the deduction. Taking the reduction in the current tax year will reduce your profits and thereby the tax you will pay on those profits.

When you purchase your inventory and how you account for your inventory can affect your taxes as well. You will need to select the “cash” method or the “accrual” method of counting your inventory value. Then you will need to decide if you treat your sales from inventory as FIFO—First In/First Out or LIFO—Last In/First Out. There are several tax-savings strategies available that depend on which of these decisions you make. You should discuss this with your accountant. To advise you of the best one, he or she will need to, know how often your inventory turns over, the value of your inventory as a percentage of your sales, and how much inventory you tend to accumulate early in the year and dispose of late in the year. This is very important. If you are moving hundreds of thousands of dollars of inventory through your business during the year, the tax implications can be enormous.

Setting up a Keogh Plan or a SEP-IRA can also save you thousands of dollars in taxes each year. The tax savings can be so great that I have known business people to borrow money to put into these plans near the end of the year to get the savings and then pay the money back after the end of the year. What you pay in interest for this short term loan is far offset by the tax advantage.

End-of-year tax planning can be a really big issue for a business. The best thing you can do is sit down with your CPA in September and talk about your business plans related to purchasing equipment and inventory in the last three months of the year and work out a strategy.

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Author: Jim Antonilli

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