financial bookkeeping tips for contractors

If you're trying to reduce your tax bill, it can be hard to figure out what the best path might be. Fortunately, you can turn to a tax strategy services provider for help with individual or business needs. However, you might wonder what a tax strategy even is so let's take a look at the basic ideas.

Minimizing Taxes 

You have every right as a citizen to not pay a penny more in taxes than you truly owe. However, the system as designed creates a sense of ambiguity about what that even means. Will you know when you're paying as low of a tax bill as you should be?

That is where tax strategy consulting services enter the picture. A tax strategy consulting professional can help you to consider which legal, financial, and accounting choices should help you keep your bill down.

Legal Structures

Especially on the business side of the issue, legal structures often dictate the sorts of tax concerns you might have. Should you set up a fully incorporated business, or will you be able to operate your enterprise as an LLC? This choice affects which deductions you can claim so it matters in terms of taxes paid.

On the personal side of the issue, many structures allow you to limit your tax bills. For example, tax-deferred retirement accounts can help you move the taxation of your retirement income into post-work years where you'll likely owe less. Similarly, you may want to look at establishing a trust as a way to move estate money into a more preferential legal structure for tax purposes.

Financial Choices

There is always a balancing act between earning a dollar and the taxes that come with it. If you're going to sell your house, for example, how will you approach the taxes on the gains? What happens if you work more overtime than expected at your job? Should you take a hit on a short-term capital gain to cash out profits from an investment or hang in there to pay the lower rate on long-term gains? Every choice has trade-offs, but a tax strategy can guide your decision-making.

Accounting

You may have to defend your tax strategy at some point. Consequently, you'll need to make some accounting decisions to support it. A business, for example, needs to choose between accrual and cash accounting so it can handle its deductions and profits accurately for tax purposes.  

To learn more about tax strategy, consult a local service like HolyOak & Co.