Subscribe to our free newsletter:

December 19th, 2017 posted by Dominique Molina (Taxloopholes.com Tax Strategist)

  1. The most expensive tax mistake is failing to plan. Planning is the key to beating the IRS, legally.I don’t care how good your accountant is with a stack of receipts on April 15. If you didn’t know you could set up a Section 105 plan and write off your kid’s braces as a business expense, there’s nothing you can do on April 15. You lose that deduction forever!
  2. Holding the wrong expectations keeps people from taking advantage of true tax planning. Do you think tax planning means “raising red flags”? Taking advantage of “gray areas”? Being “aggressive” and hoping not to get audited? In fact, it means nothing of the sort.True tax planning means proactively scouring your business and finances for tax-saving opportunities. Asking questions before you make financial decisions to avoid unpleasant surprises. And taking advantage of every legal deduction, credit, and loophole the law allows.
  3. Evaluate Your Business Entity. Most business owners and professionals start out as sole proprietor, then go on to establish a corporation or limited liability company. But which corporation? A “C” corporation for employee benefits or an “S” corporation for minimizing employment tax? Limited liability companies can be even more complicated. That’s because you can choose whether to pay tax as a sole proprietor, a partnership, a C-corporation, or an S-corporation.Choosing the wrong entity can waste thousands in tax, year after year, for as long as you operate your business.
  4. Choosing the right retirement plan can be just as challenging as choosing the right business entity. How much do you want to contribute for yourself? How much can you afford to contribute for your employees?
  5. Missing Family Employment? The minimum age for hiring a child is just seven years old. That lets you get started saving early, and even help give them good work habits. Their first $6,350 of earned income is taxed at zero. (That’s because $6,350 is the standard deduction for a single taxpayer – even if you claim them as your dependent.)
  6. Have the best health care strategy? Surveys used to show that taxes used to be small business owners’ biggest concern. Now it’s rising health care costs. The best part about a health care tax strategy is, this is money you’d spend anyway, whether you get a deduction or not. You’re just moving it from a nondeductible place on your return, to a deductible place. You’ll save income tax on whatever you deduct. You may even save self-employment tax too. Look into a Medical Expense Reimbursement Plan or Health Savings Plan to deduct your medical costs as a business expense.
  7. Revisit your auto expenses. Car and truck expenses are easy to overlook. That’s because you can take a standard mileage allowance (currently 53.4 cents/mile). But that allowance is the same for all vehicles, no matter how big they are, how much they cost, or how much gas they guzzle. Do you think every car on the road costs 53.5 cents per mile to drive?It might surprise you to see how much it really costs to operate your car. And it’s likely to be more than 53.5 cents per mile! If you’re taking the standard deduction for a car that costs more than 53.5 cents/mile, you’re losing money every time you drive for business.
  8. Home office expenses are probably the most misunderstood deduction in the entire tax code. For years, taxpayers feared it raised an automatic audit flag. But Congress has relaxed the rules, so now home offices attract far less attention.
  9. Looking for fun deductions? Try meals and entertainment! The basic rule is that you can deduct meals where you conduct a “bona fide” business discussion. This means clients or patients, prospective clients or patients, referral sources, and business or professional colleagues.When do you ever eat with someone who’s not a client, prospect, referral source, or business colleague? If you’re in a business like real estate, insurance, or investments, where you’re constantly marketing yourself, the answer might be “never.” Be sure you deduct every meal where you legitimately advance your business!
  10. Don’t Forget to Deduct Your Sales Taxes Even if you didn’t save your receipts, use the IRS table and don’t forget to add in your “big ticket” purchases like vehicles, boats, and planes!
  11. Cleaned Out Your Closet or Garage? It could save you a bundle! Make sure you claim all those charitable donations like bags of clothes, that old piece of exercise equipment and cash donations as well!
  12. Can’t Pay? Don’t Panic! First of all, make sure you file. Otherwise, you can end up having a much bigger problem than just owing some taxes. The IRS is required to offer you four different options if you can’t pay your tax bill.
  13. It pays to go Green! As of the 2017 tax year, the federal government offers two credits: the Residential Energy Efficiency Property Credit and the Nonbusiness Energy Property Credit. The credits are good through 2016, except for the solar credits which are good through 2019 and then are reduced each year through the end of 2021. These put tax dollars BACK into your pocket in the form of a tax credit – now that’s good recycling!
  14. Be careful about IRAs – they may be plotting against you! Many taxpayers eager to pay less in tax will use the “Hail Mary” of write-offs and sink money into an IRA before April 15th. Watch out because this may end up costing you more down the road. Instead, select a retirement plan that allows you to “choose” the tax rate you want to pay.
  15. The biggest mistake of all is missing tax coaching. Have you heard the saying “if you fail to plan, you plan to fail”? It’s a cliché because it’s true. Fortunately, tax coaching avoids the problem.

Are you paying too much in Taxes? Find out, take our free tax quiz.