Reducing Taxable Income

The primary way to reduce the part of your income that is subject to tax is to take full advantage of all available tax deductions, both business and personal. In order to do this, you must become aware of what is deductible and what isn't, and the special rules that apply to certain types of deductions such as meals and entertainment, automobile expenses, and business travel.

In many cases a business owner can deduct benefits that would otherwise be classified as nondeductible personal expenses. Don't overlook health insurance, investing for your retirement, or providing perks like a company car through your business.

But do remember that claiming some kinds of deductions may have a tax impact in later years. An example of this is the recapture of certain depreciation deductions upon the sale of business property or a home in which you have a home office.