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3 Things You Need to Know to Potentially Lower Your Tax Liability

I have several clients that either work in or support the construction industry. This is one industry that has taken off post-Covid and there doesn’t seem to be any slowdown in sight. More revenue means more taxes and several of these clients are looking at their taxable income and how they might be able to reduce their tax liability

The first thing I need to say is if you don’t have a good CPA, find one. This is one of three people on your personal board of advisors that you, as a business owner, can’t do without. Depending on the level of sophistication in your business, you may have a CPA that handles both your accounting and your taxes. However, if you get an audit or review, you may have two separate people involved, one for accounting and one for taxes. 

One of the clients I mentioned is looking at several tax credits to reduce taxable income. These credits are actual reductions in the tax, not tax deductions that reduce taxable income. Several of the ones we are looking at are R&D credits, the employee retention credits, and jobs credits. There are two specifically that support rural hospitals and low-income housing. There are specific requirements for each and this is where your CPA should be your guide to determine eligibility and availability.

In addition to these tax credits, there are some tax deductions that can reduce taxable income to include accelerated depreciation and the use of cash basis method of accounting, instead of accrual. 

Nobody likes to pay taxes, right? However, your business strategy shouldn’t be entirely about having the lowest taxable income. We want low taxable income for tax purposes, but also want a strong profit showing for borrowing money from a bank or renewing your line of credit, among other things. So, be sure your tax strategy doesn’t come at the expense of your overall business strategy. Consult with your CPA to determine the best tax strategy for you and your business.

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