Page 54 - March 2023

One of the most significant ways you can save money in your business is through intelligent savings on taxes. Each year many tax deductions are offered by the IRS, which can not only reduce your taxable income but can also reduce the income, which is related to the self- employment tax. Sometimes the difference between a business that is making profits and the one that is just surviving could be the management of one’s taxes.
In this article, we discuss some of the ways which can help you relieve some stress of your business’ taxes and help save you some money as well. At the end of the day, being successful is not measured by what you make but by what you keep.
Fund a Retirement Plan
People who are self-employed or those who are the owners of small businesses have more retirement planning options than any other. Like everyone else, people who come under one or both of these categories will have access to the Traditional IRA of $5,500 every year. An IRA is an individual retirement account that allows you to save finances for your retirement by using taxes to your advantage.
A business that has 100 or fewer employees is offered the SIMPLE IRA (Savings Incentive Match Plan for Employees) plan. The traditional IRA of $5,500 can be combined with other retirement plans such as the SEP IRA or the 401(K), which can result in allowing you to contribute up to $55,000 every year. Those who are over 50 can have access to even much higher contribution limits. You may be able to put away as much as $150,000 if you can get the 401(K) together with a Cash Balance Pension Plan.
You can reduce your tax bill when you are income- wise. You will surely get a tax deduction by making contributions to the plans which are mentioned above, and this can really help those businesses who are trying to become a pass-through entity, which can help them get a 20 % tax deduction on their net income.
Under the “phase-in rule,” your deductions are lowered pro-rate if you are a single filer, and your taxable income is more than $157,500, and if you are a joint filer (meaning you are married) and your taxable income exceeds $315,000 threshold. The phase-in becomes complete for single filers whose income reaches $207,500 and for joint filers whose income
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reaches $415,000.
If you have taxable income more than these upper thresholds, just forget about getting that 20% tax deduction of a pass-through entity. But if you would make contributions to the retirement accounts, your taxable income might become less than these thresholds, which might make you a qualified pass- through entity, it’s just like killing two birds with one stone.
Employ a Family Member
Hiring a family member in your small business is one of the most effective ways to reduce taxes. The IRA allows for many different options, which can give a haven to your income from taxes. Business owners can even hire their own children. No, this way, you won’t be imposing child labor on your children, but you would be teaching them the value of hard-earned money.
Typically, the children are placed in a lower tax bracket, so paying them would lessen the tax burden on your family. For example, if someone is a sole proprietor, he/she wouldn’t have to pay the Medicare and social security taxes on his/her child’s wages. You just have to make sure that you can show that your child’s earnings come from justifiable business services.
You can have your children open a ROTH IRA with their own earnings, which can result in some extra credits. Just think how much effect compound interest would have on an investment that would have been opened when someone was a teenager. For three years, that is from 15 to 17 years, if a child puts $5,500 into a ROTH IRA and doesn’t ever contribute again. Every year he/she would earn 10% of the contributed amount, and by the age of 70 that $16500 would have piled up to a tremendous $2.5 million.
Deduct Travel Expenses
When you use your vehicle for your business, you can get a deduction from expenses related to that vehicle, like mileage, lease, or maintenance. You might be thinking, what percentage of the mileage of your car can be allocated to your business? Well, it doesn’t matter what the rate is. You just have to note the mileage and apply it to your yearly auto expenses. For the deductions related to your vehicle, the IRS