1. Retirement Plan Contributions For Small Businesses
Retirement plan contributions are one of my favorite tax planning tools for business owners. Why might you ask? Because you can often make most or all of the contributions after the tax year has ended. If you are getting a surprisingly large tax bill from your accountant, you can perhaps top off your small business retirement plan to gain some valuable tax deductions and bring down your total taxes owed for the prior year.
As a business owner, you have more options to be proactive with retirement planning and tax planning. Depending on your taxable income and which type of retirement plan you set up, you could significantly reduce your current tax liability each year. Some of the most common retirement plans for small business owners are the SEP-IRA, Solo 401(k) Plan, and Cash Balance Pension Plans .
There are rules on how much you can contribute to each plan. The amount will partially depend on your age, income, and business structure. To give you some insight, with a combined Profit Sharing-Cash Balance Plan, I am currently helping a business owner client shelter nearly $600,000 in income for the tax year 2021 and, at the same time, improving the client’s future financial security in retirement.
2. Health Insurance Premiums
You may have noticed health insurance is expensive. If you are self-employed, you may be able to deduct the money you spend on health insurance premiums for yourself, your spouse, and even your dependents. Don’t miss this valuable deduction.
3. Marketing Your Business
Business owners can get tax deductions for money they spend, making people aware of their business. This may be in the form of networking, search engine optimization (SEO), your website, conferences, or even traditional marketing and advertising.
4. Business Related Insurance Premiums
Most businesses require some insurance, and some may need to have several types. These can include errors and omissions (E &O), malpractice insurance, liability insurance, and workers’ compensation insurance. These are in addition to insurance to protect your business locations and property. These insurance premiums are deducted separately from your health insurance premiums.
5. Legal and Professional Services
You can’t be an expert in everything. Even if you could, who has the time to do everything? If you delegate responsibilities, capitalize on the tax deductions for your legal and professional services.
Are you paying for bookkeeping? Tax Preparation? Business Consultant? Attorney? HR Personnel? Business Financial Planning ? All of these time-saving services can add up. Luckily, the net cost can be slightly lower when your accountant can deduct these expenses from your business income.
6. Home Office Deductions
To qualify for the home office deduction , a portion of your home must be used “exclusively and regularly for your trade or business,” and that part of your home must be your principal place of business; a place where you meet or deal with patients, clients, or customers in the ordinary course of your trade or business; or a separate structure used in connection with your trade or business.
This deduction can be valuable, but make sure you keep records of expenses and which portion of your home you use exclusively for business.
7. Auto Expenses Related to Your Business
If you use your vehicle exclusively for business, you can deduct the cost of using this car or truck. This can be a combination of auto lease payments, interest on your car loan, gas, parking, maintenance, and even repairs (in some cases).
For those who split the use of the vehicle between personal and business, you can deduct just the portion attributable to the company. If this is the case, you will want to keep records to justify the amount of business use. This could include a mileage log highlighting when you use the automobile for work.
Turn all your spending on office supplies into tax deductions. Remember not all office supplies were purchased from store like STAPLES.
8. Office Supplies for Your Business
This may sound obvious, but many people miss out on this area. When you order paper or ink cartridges from Staples or Office Depot, you are pretty aware you are buying office supplies. When you stroll through a Target TGT and throw some office supplies in your otherwise full cart, will you remember to deduct those expenses? Take the extra few minutes and separate the business purchases from the personal expenses. Put them on a separate receipt and pay with a business-specific credit card. Believe me, when tax time rolls around, you won’t remember what was or wasn’t a business expense.
9. Licensing and Taxes for Your Business
They are likely tax-deductible if you have to pay taxes or licensing fees to run your business. This can even include real estate taxes or property taxes you pay on business real estate. It can also include costs for professional licensing.
10. Your Cell Phone
Many successful businesses require the use of a cell phone. While at this time, a cell phone is necessary for most of us. For many business owners, it may also be a tax-deductible expense. When I first started as a financial planner (many, many years ago), the rule of thumb was to deduct the business portion of your cell phone usage; however, today, it is common for the self-employed to deduct most or all of their cell phone bills.
11. Self-employment Tax
You are likely aware of the payroll taxes deducted from your paycheck for Social Security and Medicare each year. Together these payroll taxes are referred to as FICA (Federal Insurance Contributions Act). You may not be as clear that there is an additional tax on self-employment income called SECA (Self-Employment Contributions Act).
When you are an employee, your employer will pay the SECA portion of payroll taxes. When you own your own business, you get to pay both sides of the payroll taxes; super fun, right? The only good news here is that you get a tax break for the portion that an employer would typically be paying. Not as great as not having to pay for it, but better than nothing.
I know tracking tax deductions is not very exciting for most people. But think of how much less you would have to work if you could dramatically reduce your taxes owed each year? To get the maximum tax deduction to pay the minimum taxes, you need to track all of your tax-deductible business expenses proactively. Tax planning and your tax planning expert are your friends.
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