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5 Steps to Take Now to Reduce Your Future Tax Liabilities!

Having just completed the 2014 Tax Season (other than extensions), here are 5 insights I gained that will help you reduce your future income tax liabilities or increase your future refunds.

  1. Reduce your federal and state tax exemptions.   Too many of you had your exemptions set too high and as a result ended up owing taxes.   My suggestion is to “guesstimate” with your tax planner what your tax bill will be in 2015 and set your exemptions accordingly.   Don’t play the game of adjusting the exemptions for a few months to get more money during the year and then adjust the exemptions again before the year is out.   Most people never remember to change  the exemptions back or they get accustomed to having the additional money on their paychecks.
  2. Increase Pre-Tax Savings.   A great way to reduce your tax liability without sending the money to the IRS is to increase your pre-tax savings through your 401K, 403B, or Thrift Savings Plan.  For 2014 you can put away as much as $17,500 (more if you are over 50) and thereby, reduce your taxable income.  You don’t have to put the full amount in but do put something away.
  3. Use Other Pre-Tax Benefit Programs.   Your company most likely offers Health Savings Accounts, Cafeteria Plans, Childcare Benefit, etc., as part of its benefit package.   Many of these are Pre-Tax like the savings programs and will reduce your taxable income as well.
  4. Track Unreimbursed Business Expenses.   Your job may require that you spend money “out of pocket” that you may not get reimbursed for.   These might include union or professional dues, continuing education, business use of home,  overnight travel or auto expenses.   If you can itemize your other deductions, you can file Form 2106 for the Unreimbursed Business Expenses.  Another option is to negotiate a business expense reimbursement deal with your employer.
  5. Use Checks or Debit/Credit Cards not cash.   Both cash and receipts get away from us too easily.  Use a check or your debit or credit card to pay for your expenses such as cash contributions,  business meetings (meals), gas,  and other deductible expenses.   You’ll be able to track these expenses on your bank and credit card statements so you can claim them for your taxes.   (Print your bank statements each month and attach your monthly receipts to it – its a good way of having your record available when needed.)

Hopefully, you’ll find these 5 steps helpful and find yourself on the way to paying the IRS less next year.

As usually, if you can any questions, feel free to give me a call.

Written by

James Fleming is an accountant and Certified Tax Coach with over 40 years experience working in and with small businesses. His company, Fleming Financial Solutions offers tax planning and preparation, bookkeeping, business and marketing consulting.