In this economy, even the richest of us are on the lookout for new and unique ways to save a buck or two. The basic tax planning strategy goes like this: reduce your taxable income, shift taxable income into nontaxable income, take advantage of tax credits, and pay the right amount of estimated taxes.
Being self-employed is quite possibly one of the best tax strategies available today. Other good tax strategies include being a landlord and being an investor. All three strategies have one thing in common: you are in full control of your tax situation, and you can reduce current income by any losses you have from freelancing, renting out property, or investing.

Taxpayers who invest in stocks, bonds, mutual funds, or real estate can benefit from the lower tax rate on long-term gains. Homeowners in particular can exclude up to half a million dollars in profits when they sell their primary residence. By shifting investment income to long-term gain, you can lower your taxes significantly.

You can avoid owing at the end of the year by increasing your withholding. More money will be taken out of your paycheck throughout the year, but you will get bigger refund when you file your taxes. Also contribute to your pension plan when ever possible as this will have a big impact on any taxes possibly owing.

Understand the difference in tax credits and tax deductions.

Tax Credits
Tax credits are given to companies as incentives for certain kinds of activities, like spending money to improve disability access or for construction of energy-efficient buildings. Tax credits are taken off taxes (adjusted) after income is listed, in order to determine adjusted gross income. So tax credits result in a "dollar for dollar" reduction in your taxes. For every dollar taken off your adjusted gross income, that's one dollar less that gets taxed. As a taxpayer and business owner, you should take all possible tax credits.

The list of possible Business Tax Credits examples:

• Work Opportunity Tax Credit for hiring certain individuals
  
• Disabled Access Credits, for making your business more accessible
  
• Credits for using renewable materials in construction or hybrid vehicles in your business

Tax Deductions
A tax deduction, on the other hand, is a legitimate business expense that reduces business income, and thus reduces tax liability. Tax deductions are determined AFTER the adjusted gross income is calculated. For example, a business which sells goods will first determine a net income after cost of goods sold. Then all the business deductions (allowable expenses) are totaled and subtracted from income to get the business profit, or the taxable income.

In conclusion, tax credits and tax deductions are both of benefit to small business owners, because they reduce the taxable income of the business, but tax credits are a little better, because they are a direct "dollar for dollar" reduction.

Tax Prep Savings (USA)

Tax advice for new Canadians