Tax Strategies for Business Owners

Please refer to the IRS website https://www.irs.gov/ for answers to specific questions about your federal taxes or the tax authority in your specific state for questions about your state taxes.

This segment of financial guides is dedicated to strategic tax planning for business owners. Can you save more? We think so.

Many small-business owners aren’t yet accustomed to the opportunities available to them to reduce the amount they pay in taxes – we want to help! Small business owners are great for the economy – they create jobs, provide needed services, promote diversity, and put money back into their communities. Yet, those same business owners are often so busy running the day-to-day of their business that they miss out on opportunities to protect revenue that can go back into their business and help them save for retirement.

We have put together a few tips for small business owners to help maximize the value of your company, benefit your employees, your customers, and your future.  

5 Essential Revenue Opportunities For Businesses

1. Start saving for your retirement. A simple first step to establish a retirement plan that offers financial security regardless of the long-term welfare of your business is to establish a retirement plan. A trusted financial professional can help you decide which type of plan is best for you. A popular option is the defined contribution plan, most often implemented as a 401(k) or SEP IRA, with these plans you contribute up to a specified amount per year – or higher if you are over the age of 55. You may instead want to consider a cash balance pension plan to stash away significantly more per year. If you can use these plans to get your taxable income below certain thresholds, you could possibly qualify your business for the pass-through tax break. 
   
   
2. Put your family members to work. Employing family members is one of the most overlooked and resourceful ways to begin reducing the household tax burden. If you employ a spouse, for example, you will likely be able to double the amount of income that can be deferred into your retirement fund.
   
   
3. Rent your home when it’s used for business activities. Do you regularly host business-related events at your home? You might have overlooked the fact that the Internal Revenue Code allows dwelling unit owners to rent their property to other individuals or entities for 14 days or fewer in a calendar year and exempts the income received from taxation! Keep in mind, you want to make sure you have a contract in which the rent is paid near fair market value.
   
   
4. Reduce self-employment tax with an S corporation. As a small business, you have until the end of the year to elect to be taxed as an S corporation retroactively. You are still required to run your payroll and pay yourself a fair wage, but distributions can allow you to eliminate the 15.3% tax on a large part of your annual income. Keep in mind with this, that avoiding self-employment taxes may ultimately reduce the amount of Social Security income you will receive in the future.  
   
   
5. Evaluate the benefits of a C corporation. S corporation or C corporation? Generally, an S corporation allows you to avoid being taxed twice as earnings – for most businesses, this is the advisable default. But for some, the structure offered by electing C corporation may offer comparable advantages. With a C corporation, you have the ability to make use of tax-free employee fringe benefits such as meal expenses, medical, disability and long-term care insurance, and even tuition reimbursements. For some businesses, it may even make sense for a company to elect to combine corporate structures for the biggest tax benefits. If you are unsure, make an appointment with us to discuss your best options. Taking legal measures to reduce your tax burden is a smart business move, don’t be afraid to find the best option for you and your business.