Tips for Reducing Your Taxable Income as a Small Business Owner
As a small business owner, paying taxes can be stressful and costly if you don’t take the time to find tax-saving strategies or work with a tax expert. However, the good news is we’ve done at least half of the work for you. Here are several tips for reducing your taxable income as a small business owner.
Employ A Family Member
That said, one of the easiest ways to reduce your taxable income is to employ a family member. The IRS offers small businesses several options and tax benefits if you hire your children or family members. Typically, small business owners can pay a lower marginal rate on income paid to their children, or even eliminate the tax on that income altogether. A prime example of this is that if you’re a sole proprietor, then you’re not required to pay Medicare or Social Security taxes on your child’s wages. Similar tax benefits are also available for small business owners who hire their spouses.
Start A Retirement Plan
Another potential source for small business savings is to start a retirement plan when it comes to taxable income. Here, the IRS has a host of tax benefits available, the most common being the one-participant 401K plan where you can put up to $57,000 in total contributions for retirement.
Save Money for Healthcare Needs
You can also consider putting aside a substantial amount of money for healthcare needs and medical costs. Many small businesses that choose to go this route often use a health savings account (HSA), which you’d qualify for if you had a high deductible health insurance plan. As medical costs continue to rise and the future of government health programs hangs in the balance, this might be something to seriously consider.
Change Your Business Structure
A possible change in your business structure is also an option that could help reduce your taxable income as a small business owner. Since you don’t have the benefit of an employer paying a portion of your taxes, you should speak with your CPA or tax professional about possibly changing your business structure to save.
Deduct Travel Expenses
Lastly, you’re likely already deducting your mileage and travel expenses related to work, which is great. Nevertheless, to truly save, you should consider combining your personal travel with justifiable business purposes. Small business owners commonly rack up quite a few frequent flyer miles for business trips. Yet, there seems to be an assumption that those miles can’t be used for personal travel. Well, the truth is they can, so keep business-related benefits like these in mind in addition to deducting whatever travel expenses you can.
Ultimately, these are just a handful of things you can do as a small business owner to reduce your taxable income and save when tax time rolls around. That said, if you’d like to find other ways to save on your tax bill, then consult a business tax professional.