There are many challenges that small business owners face day in and day out. From trying to get sales, to supply issues, dealing with customer complaints, and of course, who can forget about taxes?
Taxes can be rather stressful for a small business owner which is why if you aren’t well-versed with the legalese concerning taxes, it may be best to hire an online tax preparer such as TurboTax so get this heavy burden off your shoulder.
That said, it also would not hurt to educate yourself as a small business owner, on how you can lower your taxes. There are tax savings strategies you can employ to reduce your tax liability.
1. Hire a Family Member
Hiring a family member such as your children can help lower your tax. Small businesses pay a lower marginal rate on income paid to their kids. Sole proprietorships aren’t required to pay social security and Medicare taxes on a child’s wages as long as the earnings come from a justifiable business purpose. Small business owners are given the benefit of reducing their taxes by employing their spouse, who in turn will not have to pay FUTA tax.
2. Have a Retirement Plan
There are several retirement account options for small business owners that make the most of their retirement savings and in turn give them significant tax benefits. The one-participant 401(k) plan, for example, will enable you to contribute up to $57,000 for retirement. Use retirement plan options as a tax savings strategy.
3. Set Aside Money for Healthcare
Putting money for your healthcare needs can lower your small business taxes through a Health Savings Account (HSA). With this, you get a triple tax advantage – your health care contributions are pre-tax, they will grow without being imposed any taxes, and finally, if you need to withdraw your funds for a medical expense, you won’t be taxed for it.
4. Change the Structure of Your Business
As a small business owner, you pay the entire amount of your Medicare and Social Security taxes. If your business is an LLC, you still have to pay those taxes, but you may be able to get rid of the employer-half of those two. It can be a smart way to lower your taxable responsibility.
5. Deduct Your Travel Expenses
If you travel a few times a year for business, you can reduce your business taxes by including your travel expenses in your deductible. Since personal travel does not get the same tax benefits, you can combine personal travel with a justifiable business purpose.
As a small business owner, we don’t have the financial flexibility of large corporations. Every dollar counts. This is why it’s very important to look for ways to lower your taxable income as this can greatly help your business stay profitable.