Running your own small business is hard enough. We’ve written down some of our best tax-saving strategies so you can get the best for your business when tax season comes around.
- Start saving for your retirement.
We get it: being an entrepreneur is a huge risk.
It can often feel like you’re teetering on the brink of uncertainty. However, the more prepared and financially healthy you are, the better you can handle the challenges life throws at you.
An easy first step is to establish a retirement plan that offers you financial security regardless of the long-term success of your business. A trusted financial partner can help you decide which of these is best for you.
The most popular option is the defined contribution plan, like a 401(k) or a SEP IRA, but you may go with a cash balance pension plan if you’re looking to save a lot more. You can use these tools to get your taxable income below certain thresholds, not allowing lowering your tax burden but potentially qualifying your business for other opportunities like the new 20% pass-through tax break.
- Put your family members to work.
Now, let’s be clear: it isn’t always the smartest move to work with your family. However, if there is a healthy pathway, then use your relationship to both of your advantages. For example, if you were to bring your spouse on board, you could double the amount of income that could be deferred into your retirement plan. Spouses are often involved in business anyway. They may be more engaged than you think – and officially working with them could be the next step.
It might also make sense to put your kids on payroll. Sure, family businesses can teach children the importance of hard work and the value of a dollar. But if you can find jobs for them within your business, it might mean money saved for you! Rather than taking your personal wages and paying for the children’s expenses, you can pay them their wages directly, so they can cover those expenses themselves at a lower tax rate and potentially no tax if their income doesn’t exceed their standard deduction. You might also be able to avoid payroll taxes – both the employer and employee portion of that social security and medicare tax, totaling as much as 15.3% of the wages – that you would otherwise be paying. And with this earned income, you could even have them open a Roth IRA to help them learn how to manage their investments and lay the foundation for their own tax-free retirement.
- Claim the health care tax credit.
The health care tax credit can produce some serious savings if you’re eligible. This credit benefits employers with fewer than 25 full-time employees that pay an average salary of less than $50,000 per year and pay at least half of employee health insurance premiums. Get in touch with us to see if you’re eligible for this tax-saving credit.
- Pay attention to miscellaneous deductions.
Out of town business travel, ATM card fees for your business, and even newspapers or magazines bought to conduct your business can be used as deductions. Check with a trusted financial professional to make sure you’re claiming all of your small business’ expenses.
- Claim the work opportunity tax credit.
If your business is eligible, this credit can be beneficial to your tax filing and is available to those who hire veterans, disabled people, and other disenfranchised groups. The credit amount can vary, but in general, you can receive up to 40 percent of the first $6,000 of qualified wages paid to a new hire from one of the target groups.
- Restructure your business.
If you’re currently doing business as a sole proprietorship or a general partnership, it might be in your best interest to choose a new business structure. Many small business owners restructure their business as a Limited Liability Company, or LLC. Why? Because it offers a significant amount of flexibility for the tax treatment of your business income. By default, it’s taxed just like a sole proprietorship or partnership (with the added benefit of liability protection), but an LLC can also elect to be taxed as a C or S corporation – possibly generating some tax savings opportunities by avoiding FICA taxes on some of the business earnings.
The best thing you can do for your company is plan wisely. A misstep could cost you thousands in taxes that you shouldn’t be paying, or even trouble with the IRS. To determine the best course of action for your business, get in touch with us today.