Date: January 20, 2023
Business Owners – 3 Tips to Legally Reduce Your Tax Bill
Tax season is lurking just around the corner and getting closer every day. Many business owners’ shudder at the thought of preparing their taxes. This time-consuming task is rarely thought of as pleasant. With inflation still high, no one wants to give their hard-earned money to Uncle Sam. However, this is a good time to take a proactive approach. Here are our top three tips to legally reduce your taxable liability.
1. Hire your family – You can employ your children and save money by not having to pay social security, Medicare taxes, or FUTA (Federal Unemployment Tax Act). Did you know that hiring your spouse also has major benefits? Make it a family affair! If your spouse is not your business partner, you can employ them and pay them mostly in fringe benefits (which aren’t taxable like wages are). And thanks to recent legislation updates, as an employee your spouse can now contribute up to $20,500 (annually) to their 401K! Keep in mind that it’s always a good idea to speak with a tax strategist first to make sure you qualify for this particular strategy.
2. Working from home – Many businesses made a switch to virtual when COVID hit, and many have continued to work from home as it offers many advantages. One of these is the Home Office Deduction. If you own your home (or even rent) and have a dedicated office space, you can deduct certain things like utilities, a percentage or your mortgage or rent payment, etc. These are based on complex calculations, so make sure you have an expert in your corner to guide you.
3. Health Insurance – Take advantage of the 105 Health Reimbursement Arrangement (HRA). If you are a Sole Proprietor or a Partnership who employs your spouse, then you will want to utilize this awesome tool – it’s a tax-free benefit (if done correctly)! Here’s the basics of how it works: your spouse purchases health insurance that covers the whole family (including you, the business owner). Then you’d reimburse your spouse for the premiums AND for deductibles, copays, prescriptions – for the WHOLE family. This can save you thousands! For other business structures, saving money using a Health Savings Account (HSA) can help combat the ever-rising medical costs.
We love helping our clients reduce (or eliminate) their tax bill, so that they can invest in their retirement and communities. We are passionate about helping small business owners crush their financial goals and not overpay in taxes, which ends up happening way too often. If you don’t have someone in your corner, we are happy to help. Click here for a complimentary assessment and start saving!