HOW TO REDUCE YOUR TAXES?
By Jeffrey Brooks, CPA, CFP, MBA for JBrooks Wealth Advisors, PC, a Professional CPA and CFP Firm jeff@jbrookswa.com 602-292-2009 Please consult with your professional tax CPA regarding your specific circumstances!
The simple answer is this: BY HAVING MORE PERSONAL CASH TO CONTRIBUTE TO YOUR BUSINESS to PREPAY EXPENSES and TO AVOID LOSING DEDUCTIONS DUE TO A LACK OF BASIS.
HOW CAN YOU INCREASE YOUR CASH AMOUNT?
Now that you understand how important it is to maximize cash, how do you do it? Everyone is different but a good analogy would be why and when does an alcoholic stop drinking and a smoker stop smoking. They have to want to stop to stop because they do not like continuing to live with the emotional negative consequences.
I believe the viewpoint must change from acting like today is the last day of their life to taking a longer time perspective!
There are many books that explain in depth how to change the viewpoint and perspective. Here are a few of the ideas that will work with just some pain when you do not have enough cash to reduce taxable income on a Cash Basis:
- Work on downsizing your home. Although Shari and I have the money, we have never purchased a house that has more than 2,300 square feet. If we had to, we could get down to 1,400 square feet. Bigger houses have higher mortgages interest and principal, real estate taxes, insurance and utilities that require more cash.
- Buy clothing at a thrift shop like Goodwill instead of the expensive department stores. Nearly 100% of my wife and my clothing are from thrift shops.
- Stop buying on internet sites with bidding.
- Eat more often at home instead of eating out.
- Pay off old credit card balances with high interest rates.
- Draft as large a percentage of funds transferred to you via payroll check or draw to build cash reserves. Once you have sufficient cash buildup to reduce your income taxes on the Cash Basis, invest the excess in liquid investments like mutual funds towards obtaining financial independence. These liquid investments can also be “tapped” to help reduce your business and your taxable income.
- If you are funding college educations instead of using the cash to reduce taxable income, you should stop doing that and have your child get a Stafford or other college loan at low rates.
Transfer business assets from your home office to your business
