Q:My tax burden is killing me. How can I lower my taxes?
A: As you might imagine, taxes are a big topic for business owners. Lowering your tax burden can be done, and here are a few ways to do it.
Look for additional deductions. There are many business expenses you may deduct from your overall income, including training, advertising costs, interest on business loans--the list goes on. You'll want to be careful, however, that you don't trigger an IRS audit. Your accountant can help you find hidden deductions.
Start a retirement account. Federal law allows sole proprietors to put up to 20 percent of their annual income into a retirement account such as a solo 401(k), a SEP or a Keogh. Sole proprietors who set up the company as a corporation can sock away up to one-quarter of their income. This one move will significantly lower your taxes, and it's also an important step for your personal financial solvency.
Hire family members. By spreading the income around, you can increase the amount that is taxed at lower tax brackets. Check with your accountant to make sure you do it right, and make sure family members get paid fairly.
Hire independent contractors. Hiring independent contractors instead of employees automatically lowers your payroll taxes.
Pay overhead expenses early. Your electric and phone bills might not be due until mid-January, but pay them by December 31 if your cash flow allows so these deductions can be applied to this year's taxes instead of next year's taxes.