James Thompson is a self-employed consultant providing IT services to various clients. As the fiscal year comes
Question:
James Thompson is a self-employed consultant providing IT services to various clients. As the fiscal year comes to a close, James is looking to optimize his income tax liability. He operates as a sole proprietor and is responsible for managing his business finances, including tracking income, deductible expenses, and understanding the applicable tax regulations.
Income and Deductions: During the fiscal year, James earned $120,000 in gross income from his consulting services. His deductible business expenses include office rent, software subscriptions, travel expenses, and professional development courses, totaling $30,000.
Tax Regulations: James is aware of the tax regulations applicable to self-employed individuals. He knows that he can deduct legitimate business expenses to reduce his taxable income. Additionally, he is familiar with the progressive tax rates and the need to make estimated tax payments throughout the year.
Tax Planning Strategies: To optimize his income tax liability, James is considering various tax planning strategies. These include maximizing deductible expenses, understanding available tax credits, and exploring retirement savings options that provide tax advantages.
Objective Type Question:
What is the primary purpose of James' consideration of deductible business expenses in managing his income tax liability?
a. To increase his gross income b. To reduce his taxable income c. To minimize business revenue d. To maximize tax credits