If you operate a small business, then every dollar you earn has importance. Sending your cash to the IRS without having a strategy to manage your income and taxes could cost you more than you realize.
Most small businesses are not taking full advantage of the opportunities that are available to them. Why pay more than is necessary?
These are the most overlooked strategies that could help you to maximize the value of your business activities.
Save for Your Retirement
Most entrepreneurs and sole proprietors focus on keeping their business afloat at the expense of personal insolvency. Establishing a retirement plan can offer you long-term financial security without completely changing your revenue structure. Options like a SEP IRA allow you to contribute up to $55,000 per year – and sometimes more. These tools could get your taxable income below the thresholds necessary for the pass-through tax breaks that exist.
Let Your Family Work
The IRS allows married couples to file for qualified joint ventures if both are materially participating in the business under a sole proprietorship structure. You can also form an LLC or submit partnership paperwork through your local Secretary of State. If you work together, then you can double the amount of income that defers into your retirement accounts.
Some small business owners can also reduce their obligations by hiring their children. Their income could be put into a Roth IRA, giving the business a tax benefit and a way to provide for their future.
Rent Your Home for Business Activities
The IRS allows the owners of dwelling units to rent their property to other entities or individuals for 14 days or less in a calendar year. This process exempts the income received from your taxes. You’ll need to execute a contract where the rent is at the fair market value, and then classify it as an ordinary and necessary expense of the entity.
Become an S Corporation
You have until the end of each year under the current tax law to choose to be taxed as an S corporation retroactively. You will need to run payroll and pay fair wages under this structure. Doing so will eliminate the self-employment tax that applies to your income when filing each year.
This option could reduce the amount of your final Social Security benefit when retiring. It could also help you to save more for it because of the way you’ve structured your earnings.
Home Office Deductions
If you work from home, then your small business can save on taxes with a home office deduction. This option applies to homeowners and renters if you meet the IRS regulations for the current tax year. You’ll need to have a dedicated space as your working area. This option may be available even if you regularly conduct business outside of your home, but you still have a substantial presence in your office.
Each business situation is different. You are welcome to stop by our office to discuss the specific details of your financial situation. Working together can help you to ensure that your company maximizes the value of every dollar earned.