Dealing with taxes is one of the burdens many entrepreneurs have to face. It can be quite painful shelling out a sizable part of your hard-earned income to the government, especially when you’d rather spend it on providing more benefits to your employees, growing your business, and enjoying the fruits of your hard work.
If you own a small business in Nashville, consider working with an accounting firm in devising strategies that can ease your tax burden. Below are a few suggestions you can adopt with the help of an accountant.
1. Start a retirement plan for yourself and your employees
You have several options for a self-employed retirement plan, including a SEP-IRA, a SIMPLE IRA, solo 401(k), and others. Not only do these plans give you and your employees the chance to grow your retirement funds with tax-deferred status, you can also deduct your contributions to the funds from your taxable income. The amount you’re allowed to contribute is widely variable, so it’s best to consult with an accountant on what makes the most sense for your business.
2. Set aside a fund for your healthcare needs
If you and your employees have a qualified high-deductible health plan, consider starting a Health Savings Account (HSA). You can use the account to pay for eligible medical expenses or to compensate for your health plan deductibles. The contributions you make to your and your employees’ HSA are also tax deductible.
3. Employ family members
You can hire your spouse and even your children as young as 7 years old to work in your business. Instead of getting their spending money from your household income, they can earn their own salary. The expense can then help reduce your business taxes.
You might also consider starting a retirement plan for your spouse. The employee and employer contributions to the plan are tax deductible, so that translates to tax savings not only for your business but your household as well.
You can pay your children’s salaries at a lower marginal rate or no tax at all. You may also put their salary into a Roth IRA. This way, your children learn about managing investments while you take advantage of the tax benefit that comes with the contributions.
4. Change your business structure
Consider changing your business structure into an S corporation. As your own employer and employee, you’re liable for the employer and employee portions of your Medicare and Social Security tax. Known as self-employment tax, this amounts to a staggering 15.3% of your income. (Note: Social Security tax only applies to the first $128,400 of your income.)
By switching to an S corporation, you avoid paying self-employment tax. There are, however, a few consequences to consider. For example, you need to pay yourself a salary, so you have to determine the amount that works best for you and your business. Reducing your self-employment tax may also reduce the Social Security income you can receive in the future.
Other tax strategies
There are other tax strategies you can explore by working with an accounting firm. Any savings, especially when accumulated, can be highly beneficial to your business, so make sure you don’t miss out on these opportunities.
Sources:
5 Tax Strategies for Small Business Owners, Kiplinger.com
5 Little Known Ways to Reduce Small Business Taxes, Investopedia.com
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