Pay Lower Business Tax by Following These 5 Smart Tips
Taxes can be stressful for a small-scale business owner. There are many hats you wear as a business owner, and the one thing you don’t want to do is pay an increase of the hard earned earnings from your business towards the federal government. There are plenty of tax-saving strategies that can lower your tax burden to the government as the owner of a business. If you’re looking for methods to lower your tax-deductible income this year then you should consider one of the strategies below.
Employ a Family Member
One of the most effective methods to cut taxes for a small-scale business is by bringing on one of your family members. It is possible to do this through the Internal Revenue Service (IRS) offers various choices, each with the possibility of shielding income from taxes. You can even hire your children.
Based on Scott Goble, a certified public accountant (CPA) and the founder Sound Accounting, a company founded by Scott Goble Sound Accounting, by hiring family members, “small business owners are able to pay a lower marginal rate, or eliminate the tax on the income paid to their children.”
So, for instance sole proprietorships do not have to pay social security or Medicare taxes on wages of children, nor taxation under the Federal Unemployment Tax Act (FUTA) tax. It is essential to note that the earnings must be derived from legitimate business reasons. It is also important to note that the IRS additionally offers small-sized businesses owners the benefit of reducing taxes by bringing in a spouse which isn’t affected by taxation under the FUTA tax. Based on any benefits they be able to receive through their other work, you might be able to set aside retirement savings to the benefit of your spouse.
Start a Retirement Plan
As a small-business proprietor you forfeit the 401(k) match that is matched by your employer. There are a variety of retirement accounts options that will maximize savings for retirement and provide tax advantages. For instance, with the single-participant 401(k) program, the IRS allows the account to set aside the equivalent of $57,000 in contributions total for retirement. The retirement planning vehicles are:
-Simplified Employee Pension Plan (SEP)
-IRA or a Roth IRA
There are many various retirement plans for entrepreneurs on the IRS website for tax-saving strategy.
Save Money for Healthcare Needs
One of the best methods to cut down on small business tax is by saving funds for healthcare requirements. The cost of healthcare continues to rise even if you might be in good health but saving funds for unanticipated or future medical expenses is vital. This can be accomplished through the use of a Health Savings Account (HSA)(HSA) in the event that you are covered by an suitable high-deductible health insurance plan.
“I recommend to any business owner to think about the option of an HSA. With rising medical costs and businesses seek to reduce the cost of medical insurance,” says Sean Moore, CFP, ChFC of Smart College Funding. “By utilizing HSAs, the business and the employees can reduce taxes and potentially associated medical costs.”
Moore explains that the savings can be accessed in three ways, also called the triple tax advantage. the contributions are tax-free and grow tax-free and withdrawals from eligible medical costs are exempt from tax.
Change Your Business Structure
If you’re a small-business owner, you do not have the benefit of having an employer that pays a portion of your tax bill. You’re responsible for the full sum that is Social Security and Medicare taxes. If your company is taxed as an Limited Liability Company (LLC) however, you’ll need to pay the taxes, although in some situations, you might be able to get rid of the employer-part of these two tax obligations. This could be a smart change for small firms. There are many aspects to think about when making this change for example, the possibility of earning a fair salary and also the risks associated with it this could be an effective option to lower your tax burden.
Deduct Travel Expenses
If you frequently travel it is possible to lower your taxes for business. Business travel is tax-deductible however personal travel does not have the same benefits. To maximize your business travelexpenses, small business owners are able to combine their personal travel with an objectively business-related purpose. Frequent flier miles during business travel can be used to travel for personal use later on.
The Bottom Line
If you plan your business well with a smart strategy, you can lower the amount of tax you pay as a small-business owner, and have more of your earnings to benefit you. Make sure to speak with an accountant to determine if you qualify to benefit from the savings we’ve mentioned in this article.