Your tax liability is the total amount of taxes you owe to the U.S. Internal Revenue Service (IRS), state or local government. A tax liability includes your income tax, employment tax, capital gains tax and past taxes that haven’t been paid yet. Ultimately, anything you are required to pay taxes on is a tax liability.
From business expenses to careful investments, there are a variety of strategies that smart business owners can use to reduce the portion of their business income that can be taxed.
Know which deductions you can legally make.
“Many small business owners are unaware of deductions and are missing out on money that can be saved every year,” said Gary Milkwick, chief product officer of 1-800Accountant.
Milkwick named some of the most common business expenses owners can deduct from their taxes:
Expenses and mileage for personal vehicles that are used for business
Cell phone bills, if the phones are primarily used for business
Costs of operating a business from home, such as a portion of your mortgage, rent or utilities
50% of meal and entertainment expenses with existing or potential partners, employees, contractors and clients
Costs to purchase business equipment, such as computers, printers, monitors and phones
Setting up and contributing to retirement plans