15 Nov How can we save money on taxes?

Q. I do my daughter’s taxes and last year she and her husband had to pay. What can we do to lower the tax? The good news is that they are earning more salarywise but the withholding is insignificant. They also started a small business and we added the business income into the AGI, which is exacerbating the problem. Do we need to spend more money on business improvements like remodeling? Any help would be appreciated.
— Dad

A. It’s a good question.

And of course, the answer is layered.

It is important to understand the difference between having to pay taxes and saving money on taxes, said Howard Hook, a certified financial planner and certified public accountant with EKS Associates in Princeton.

“The fact that someone owes taxes at tax time is a function of both how much tax is calculated based on their taxable income and how much tax they have had withheld,” he said.

For example, there are individuals whose tax liability, when calculated, is a small amount. However, if no tax was paid through withholding or estimated tax payments, they owe a significant amount at tax time, Hook said.

Conversely, there are people in the highest tax brackets who have done no tax planning whatsoever, but because they paid a significant amount of taxes through their payroll, they are receiving a substantial refund, he said.

Because you mention both reducing taxes and insufficient withholding, let’s address both.

“Tax withholding calculations from payroll companies — who use IRS and state tax withholding tables — are notoriously bad at accurately projecting the correct amount of taxes to withhold,” Hook said. “There are many variables that go into figuring this out besides the actual payroll wages.”

You can try the IRS payroll tax calculator, which Hook said is a bit better.

Small businesses have an advantage over other forms of earnings, such as a salary from an employee, because business expenses can be deducted from the income of the business when determining how much income is taxable, Hook said, noting that employees are no longer able to deduct work-related expenses, such as office supplies, unreimbursed travel to clients, or other similar expenses.

However, all of these expenses are still deductible by a small business owner.

He said the Tax Cuts and Jobs Act (TCJA) also introduced a new type of deduction called Qualified Business Income (QBI).

“In its simplest form, a small business may be able to deduct an additional 20% of its net business income on the business owner’s tax return,” he said. “This, when done correctly, can be a significant reduction in income. I recommend seeking the advice of a qualified tax preparer unless you are 110% sure you can figure it out yourself.”

Finally, to answer your question about business remodeling, Hook said these types of expenses can be used to reduce a business owner’s taxable income.

“However, because remodeling or renovations to a storefront, for example, provide value beyond just the current year, these expenses tend to have to be deducted over the property’s useful life,” he said. “This is called depreciation.”

He said tax law is quite complicated when it comes to determining how and when to depreciate these expenses, so he recommends seeking the advice of a qualified tax preparer rather than attempting to do it yourself.

“The last thing I would say is that the tax benefit you get from incurring business expenses is never greater than the out-of-pocket expense incurred by spending the money on the item or service,” he said. “Most of the time, the tax benefit is likely to be, at most, 40% of the out-of-pocket expense.”

“So, the lesson here is don’t spend money just to get a tax deduction. Spend the money because it benefits the business – and then be sure to take the deduction on your tax return,” Hook said.

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This story was originally published in October 2025.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.