The Everyday Activities That Reduce Your Taxes

March 10, 2017

Those who are most successful in their tax strategy make it a part of their normal activities. To them, a tax strategy is not a one-time event. Rather, it is something that becomes part of their routine.

A tax strategy helps you to view your everyday activities in a different way – one that works toward the goal of permanently reducing your taxes.

The reality is that just about everything you do can have an impact on your taxes. So, why not make sure that impact is a positive one?

Here are a few examples of everyday activities that can impact your taxes:

  • Paying expenses
  • Receiving money from an entity you own
  • Putting money into an entity you own
  • Having a meeting with partners, vendors or advisors
  • Buying or selling investments
  • Having an important discussion about your business or investments

The above items are activities you probably already do on a regular basis. By keeping your tax strategy in mind while doing these activities, you can improve the results of your tax strategy – all without having to do anything out of the ordinary.

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Paying your expenses

When you pay your expenses, who is paying for that expense? Is it you personally? Should it be your entity instead? What type of documentation do you need to keep for your tax strategy?

Unless you have your tax strategy in mind, it is easy for this ordinary transaction to have a negative impact on your taxes.

You may pay for business expenses personally and forget to have your business reimburse you – this means the expense gets missed as a tax deduction.

When you keep your tax strategy in mind, it will be routine to have your business reimburse you. Or, even better, it will feel wrong to not have your business pay for the expenses in the first place.

Receiving money from an entity you own

Every payment you receive from your entity can have an impact on your taxes. This may include salary, distributions, expense reimbursements or other forms of payments.

Your tax strategy maps out the best way to take money out of your entity. Making sure those payments are treated as they are supposed to be, should be part of your everyday activities.

For example, if you are receiving a salary, it should look like salary. This means it’s paid on a set schedule (weekly, bi-weekly, bi-monthly, monthly, etc.) and the proper taxes are withheld.

Similarly, if you are taking a distribution, it should look like a distribution. Distributions are usually not paid more frequently than quarterly. Also, distributions are usually not a set amount as they are typically tied to the profitability of the entity. If your distribution is paid every two weeks, it looks more like a salary and this can have a negative impact on your tax strategy.

Keeping this in mind, as you receive payments from your entity, helps the success of your tax strategy.

Having a meeting with partners, vendors or advisors

If you are meeting with a partner, vendor or advisor, odds are you are discussing items that impact your tax strategy. These meetings likely cover topics important to your tax strategy, like investments, new opportunities, strategic decisions or major purchases.

All of these are great to have documented in the form of meeting minutes. Meeting minutes provide tremendous support for deductions, investments and business purpose – all of which help the success of your tax strategy.

Your Tax Strategy

Those who are most successful in their tax strategy are those who have incorporated it into their routine. When reaching for a credit card to pay for lunch, they are asking themselves, “Should I pay with the business card or my personal card?”

It is the everyday activities that make tax savings a reality.

Tom Wheelwright, CPA

To ensure compliance with requirements imposed by the IRS, we inform you that any US federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and it cannot be used for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein. If you are not the original addressee of this communication, you should seek advice based on your particular circumstances from an independent advisor.

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