Why? With a few simple changes, you can permanently reduce what you pay and, in some cases, almost immediately.
I tell my clients, “If you want to change your tax, you need to change your facts.” It’s not about finding loopholes in the tax law. Instead, it is about changing how you earn and spend money to do so in ways the tax law favors.
If you’re ready for a less-taxing 2023, here are 10 ways you can get started on making this important shift.
1. Get serious about bookkeeping.
One of the biggest reasons people miss out on tax deductions is their records are a mess. If you still need a fool-proof system for accurate bookkeeping, make that your top resolution in 2023. Ideally, hire an independent bookkeeper. Then, review your balance sheet and profit and loss statements regularly.
2. Maintain good documentation.
Good documentation goes hand-in-hand with bookkeeping and is the most powerful way to ensure your tax advisor has all the information needed to help you reduce your taxes. Start the year with a solid process and maintain it throughout the year. That way, you’ll avoid the overwhelming task of trying to gather everything at the last minute. Documentation may include the following:
MileageTravel expensesMeeting minutes for your businesses/entitiesLoan documents between you and your businesses/entitiesAgreements between you and your businesses/entitiesActivity logs (particularly in the U. S. for those who claim “real estate professional” status)Receipts for all other business expensesMedical expensesChildcare expenses
3. Become an entrepreneur.
If you haven’t already taken the plunge, now is the time. The government wants more people to start, grow and invest in businesses and, as a result, offers lots of tax incentives for doing so. You don’t even have to work in the business full-time to enjoy the benefits. The tax benefits for starting a business on the side are so great that the immediate tax benefits can be more than the cost of starting the business.
4. Put your kids to work.
Wouldn’t it be nice if more of your income could be taxed at a 0% or 10% tax bracket? If you own a business and employ your minor children, you can. As long as you pay them a fair wage for real work, they will receive income taxed in their much-lower tax bracket. Don’t worry. You retain control over the money by being a signer on their bank account, and you can use the funds for pretty much anything other than food and shelter. Extracurricular activities, summer camp, education and more are all fair game.
5. Consider investing in renewable energy.
The government is offering great incentives right now to anyone who is willing to invest in renewable energy. There are attractive tax credits for solar power systems, electric vehicles and charging stations. If you are a property owner and have yet to make these investments, put it on your list to evaluate in 2023.
6. Be strategic with entities.
Entities are one of the greatest tools to reduce taxes. If you’re starting a business for the first time, you’ll want to ensure it is set up correctly. If you already have entities as part of your wealth and tax strategy, review your entity structure and determine if you will add or change the tax structure for any of your entities this year. Adding the right entity in the right way can save as much as $10,000 per year in taxes immediately.
7. Keep your salary and distributions on track.
Optimizing how you take money out of your entities is an effective way to reduce your taxes. Work with your tax advisor to ensure your salary and distribution schedule support your tax strategy.
8. Get reimbursed for business expenses.
If you pay for any business expenses personally, including your own business, make sure you are reimbursed. It’s easy to forget these and lose out on the tax deductions.
9. Meet with your tax advisor regularly.
Go ahead and schedule a meeting with your tax advisor and make it clear that you’d like to talk about not just your 2022 return but your long-term strategy as well. You should have regular touchpoints throughout the year.
10. Start today.
While it may seem a little early to start thinking about a tax return that isn’t due until April 2024, a new year is an ideal time to update your wealth and tax strategy. Don’t delay!
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
