Tax savings is a goal of every small business owner. However, 93% of business owners will overpay on their taxes, each year. Small business owners have multiple options to save on taxes, as long as they know where to find them. Below are just a few simple tips that can help you to maximize these tax-saving opportunities and put more money back into the business.
1. Implement a Health Reimbursement Arrangement
A Health Reimbursement Arrangement can lower taxes for everyone involved. Essentially, this tactic allows you to reimburse your employees for medical expenses with tax-free income. This means you and your employee are exempt from paying taxes on this money. Additionally, your payments for Health Reimbursement Arrangements are tax deductible, so you’ll save money in that area as well.
When you implement this program, you will set a maximum amount available for each year and your employee will shop for the health care package within that amount that best fits their needs. Requirements are simple and usually just require proof of insurance and giving the employee to opt-out of the Health Reimbursement Arrangement at least once a year.
This is a great way to save on taxes when it comes to insurance coverage.
2. Use an Accountable Plan
Accountable plans allow you to reimburse your employees for business expenses without it being counted as income. This means you and your employees will not have to pay taxes on the money you use to reimburse your employees. The only requirement for accountable plans is that it follows IRS guidelines, which say the expenses MUST be business-related and counted for properly.
The IRS says business-related expenses include:
- Meals
- Travel
- Lodging
- Transportation
- Entertainment
- Etc.
This is a great way to save a little extra on taxes since your reimbursements are not taxed as income. Accountable Plans are also tax deductible, letting you save a little money in that area as well.
3. Start a Retirement Plan
There are multiple options for retirement plans that the IRS will provide some tax reduction for contributions. While you will not have the advantage of an employee with an employer matching 401(k), there are still ways to save. By contributing tax-free to these accounts, you save the cost of extra taxes while also helping to prepare for your future retirement.
With a one-participant 401(k) plan, you will be able to contribute up to $61,000 pre-tax throughout the duration of your business ownership. This will save you come tax time and also allow your retirement account to grow more rapidly.
4. Review Your Business Structure
While it is likely that you started your company under what would have been the business structure at the time, as your company continues to grow, another structure may provide you with better tax benefits. Options such as S-Corps and LLCs are pass-through entities that allow you to be taxed on profits at your personal rate instead of the corporate rate. In certain circumstances with LLCs, you may also be able to eliminate the employer portion of FICA taxes, which can lower your overall tax liability. Look at each option and review how a change may affect your taxes to see if there are any savings to be had.
5. Defer Expenses and Invoices
Deferring your expenses and invoices may not save you from paying tax, but it may help alleviate the burden of having to pay the taxes now. Consider deferring large expenses until after the first of the year, which will allow you to push off paying the taxes until the following year, when funds may be more available. You may also defer invoices into the new year so that the income will not be taxable until the next tax season. Doing this can also provide you with additional income at the beginning of the year to allow you to cover your tax liability from the previous year.
Bonus Tip: Work With an Experienced Accountant
If you are looking to maximize your tax savings, an experienced accountant can help you achieve your goals. They know the tax deductions and credits to look for so that business owners will save on their overall tax burden. Their proven strategies can even help you to catch areas to save that you may have never noticed before. On top of that, they can work with you to build a tax strategy that will help you to continue to save in the future so that you can focus on growing profits.Ready to get started maximizing your tax savings? The knowledgeable and professional accountants at Pasquesi Partners are here to help. Contact us today to set up an appointment.