Tax savings strategies are not one-size-fits-all

Each case is so individual that what can be a deduction for one family or business won’t be for another. That’s why we can’t provide a list of “guaranteed tax savings techniques” here. But we will raise ideas and potential strategies you can ask your tax pro about if you think they might fit your situation and your tax pro hasn’t already brought it up.

Your whole household picture: not just your business

Your business income (both gross and net) will vary year to year, and the IRS expects it to be low during your first years -- but not forever. The IRS understands the business has to spend money in order to make money, so it’s prepared for you to claim a lot of different business deductions. But they still figure you have to have enough money to live on, so they expect evidence of that from your tax return -- somewhere.

Handling those loss years

Your tax pro will look at your whole tax-related picture to determine how to deal with the various sections in your return. Let’s say you are married and your spouse receives a nice salary. If your business income is below-zero this year, its negative numbers may reduce your family’s overall tax.

But say you are single and have no other income source. If your business income is below-zero this year, you have no other gain for that loss to reduce. (The IRS doesn’t give you a rebate or anything for negative income!) So your CPA will probably “carry forward” this loss, so it is there on record for you to use it in future years when you have positive income that it could reduce. We’ll return to this concept below. The point here is that there are a myriad of business and non-business aspects that affect the tax total on your return.

This is why it’s so important to meet with your tax pro BEFORE the end of your business year, so he or she can advise you on actions you should (or shouldn’t) take before the year ends.

Peaks & valleys in your annual business income

Even before you started your company, you knew your income from the business would be erratic -- often the opposite of whatever you expect! When you experience your first business loss, your logical tendency is to freak out! You wonder when the money will come in to make up this deficit -- after all, a business is supposed to be profitable! Meanwhile, what will happen to your lifestyle?

But once you have a profitable year, you’ll see that mortifying old loss in a new light. Now that you’ve finally made enough money to complain about the tax you’ll have to pay, your tax pro can probably apply some of that old loss to lessen your current tax.

This loss carry-forward, carry-back stuff is too tricky to try yourself. If it’s not done correctly, red flags fly straight up. So rely on your tax pro to handle this esoteric wizardry for you.

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