Ways to reduce taxable income for small businesses
Every small business owner can benefit from certain strategies to save money on taxable income. Accurate Tax and Bookkeeping Services shares some tips on how to easily save money on taxes.
1. Employ a Family Member
By hiring family members, small business owners can pay a lower marginal rate or eliminate the tax on the income paid to their children. For instance, sole proprietors may not need to pay social security and medicare taxes on the wages of a child nor the Federal Unemployment Tax Act (FUTA) tax. It is however important that the earnings must come from justifiable business purposes.
Small business owners can also reduce their taxes by hiring a spouse, who may not be subject to the FUTA tax. Retirement savings can also be created for the spouse depending on the benefits availed through another job.
2. Begin a Retirement Plan
A solopreneur or a business owner who has employees can get a tax benefit for contributing to or offering a retirement plan, like a 401(k) or IRA. Employee retirement plans can save a business on employer payroll taxes because it lowers the amount of employee wages subject to the Federal Unemployment Tax Act (FUTA).
Solopreneurs are eligible to open a solo 401(k), also called a one-participant 401(k), where the contributions are tax-deductible up to a limit. The solopreneur will however need to pay income tax on the contributions upon withdrawal in retirement.
3. Save Money for Healthcare Needs
Putting aside money for healthcare needs is one of the best methods of saving taxes and is essential for unexpected or future healthcare needs. This can be accomplished through a Health Savings Account (HSA) with an eligible high-deductible health plan. The savings through this method are attained in three ways: the contributions are pre-tax, they grow tax-free, and withdrawals for qualified medical expenses are tax-free.
4. Change the Business Structure
Choosing the right business structure can lead to significant tax savings. For instance, business owners can cut down on payroll taxes by selecting S corporation taxation. S corp owners who participate in management are considered employees and get paid through salaries and dividend distributions (these are not subject to payroll taxes). However, the IRS prevents businesses from avoiding payroll taxes altogether by requiring that they earn a reasonable salary before taking distributions.
Business owners must consult with a CPA or tax attorney before making these big changes.
5. Deduct Travel Expenses
Business travel is fully deductible and any frequent flier miles earned from business travel can also be redeemed for personal travel. Small business owners can combine personal travel with a justifiable business purpose to maximize their business travel.
Accurate Tax & Bookkeeping Services specializes in handling financial needs for businesses of all sizes.
Greg J. Menia founded the tax preparation service company in 2010, having worked in business tax services since 1995. The team performs tax services for small businesses and large businesses alike, serving all areas around Tampa, FL.
Call (813) 655-9702 today for “accountants near me” in Brandon, Florida. Alternatively, contact Greg and the team at Accurate Tax & Bookkeeping Services by emailing [email protected] or visiting the offices at 710 Oakfield Dr. Suite 159, Brandon, FL 33511.