8 ways to lower self employment and income taxes right away, and over the long haul, for small business owners, self employed, and 1099 sub contractors
I'm going to show you 8 Tax Mitigation Hacks Business Owners Better Use.
I hope you end up booking a consultation with me and becoming a client.
Even if you don't, you should keep this information I'm about to share and bring it to your current accountant, or focus on implementing these strategies because they're straight from the halls of upper echelon Big 4 accounting firms.
I help small and medium sized businesses, take command of their taxes like the big corporations do.
You know how Donald Trump got hammered in the media for not paying anything in taxes?
Donald Trump, love him or hate him, had really good accountants providing pro-active tax planning strategies to him.
The result was that he mitigated his taxes drastically, carrying over losses from real estate to his regular income and utilizing paper losses.
Just like the elite business owners, we can drastically lower your taxes.
We're all about 3 things here at Tax Plan Ventures:
I hate when people waste my time, so let's get into the 8 strategies that will drastically reduce your taxes.
First off, you need to look at converting from a schedule C, to an S-Corp.
If you made 150,000 net as a schedule C, you'd be paying about $22,950 in self employment taxes.
If you converted to an S-Corp, and took a 75,000 salary, you'd only pay $11,475.
BOOM - I just saved you $11,475.
There's more that goes into making the decisions, but typically, you need to convert to an S-Corp properly and then maximize they s-corp legally.
I'll be brief here, just enough so you want to call us.
When you become an S-Corp, you'll get paid in 2 ways instead of just having a schedule C.
In an S-Corp, the corporation will pay you a salary, and then as an owner, you can pull money out as a distribution.
The distribution is NOT subject to the 15.3% self employment taxes, but the payroll or salary is.
Now, that would lead people to take NO salary from their S-Corp, but that's illegal.
You have to abide by the IRS rulings, and your corporation must pay you a "reasonable" salary.
I help you figure out what's a reasonable salary.
An S-Corp can create massive savings in taxes AND it can help you in some other ways, but there are tradeoffs.
You'll need to make sound decisions with your salary.
You need to process the salary through a payroll system.
You'll need to pay in taxes
You'll need to convert or setup the S-Corp
You need corporation documents for your S-Corp
You'll also have a larger tax return at the end of the year.
Bottom line is that an S-Corp will provide a ton of tax savings that you can use to pay for additional staff, invest in retirement funds, and build more wealth.
We all know that we should invest.
But if you're a red-blooded business owner in America, you probably get cynical of the Wall Street machine.
If you own a business, or if you're self-employed, you need to examine the remarkably beneficial tax advantages that you can achieve with business retirement plans.
Government wants people to save for retirement, and they want companies to provide plans.
Because of that, the juiciest tax write offs in America are reserved for business owners and their corporations.
If you have employees, you cannot provide yourself with retirement plans while ignoring your other full time employees.
So remember there's conditions on what I'm about to share with you.
Did you know that a SEP IRA and a 401k can allow your company to provide an employer contribution up to 25% of your business income, up to $58,000?
Seriously, your business can just write off an employer contribution to your retirement fund.
Now, that money grows tax deferred, and can't be touched until you're 59 and a half years old, or you get a penalty.
But think of that, the employer contribution ESSENTIALLY avoids self employment tax in a slight way.
To a degree, that contribution avoided the 15.3% self employment tax, and you'll never pay it.
That means you essentially got a 15.3% return on that money without doing a thing (kind of, as long as you don't lose money).
We can help you discover what's the best plan to use for your business.
PLANS:
SEP IRA - 25% of salary or Schedule C, up to $58,000 a year (catch up for people over 55)
Simple IRA - Easier to encourage your employees to save and you'll match.
401k - Employer match in a simple manner, up to 4% of salary, not to exceed $58,000 AND the employee side can invest the usual 401k limits of $19,500 for 2021 and $20,500 for 2022.
Bottom line -
If you're going to invest, which you should, you should use a retirement plan for your business income.
If you have employees, the most TAX efficient way to pay them is through retirement plan matching or profit shares.
Vanguard and Schwab all provide inexpensive options for these plans, or connect with me to find the best one I recommend.
Look, there's some things you can do with mileage that are pretty fantastic.
Do you travel much?
Do you want to choose a company vehicle that's a better tax write off than the typical?
Well, it's never wise to spend money unnecessarily just because you get to write it off.
Don't spend on nonsense you shouldn't buy.
But if you need a vehicle, and you're going to drive and travel for business, I can help you understand how to do that better.
4 Home Office & Building an Office
Lazy accountants just take the standard office deduction, but with the advent of working from home, there's much more you can tap into.
The bottom line is that for the most part, you can take the percentage of square feet that's dedicated to pure business, and then determine what percentage that is, and then deduct that percentage of the utilities, services, and interest from your mortgage.
Can you write off your mortgage in your small business? No, you cannot write off the part of your mortgage that's principal.
That being said, the interest, utilities, and many of the services you might need to keep the office going is included.
Not only that, but many people are starting to build out office space, build out buildings, and their own home offices which business owners can use completely for business.
Long story short, don't simply sit back and take the standard office deduction, when we can do the hard work of determining the maximum deduction possible.
Real estate investing is full of astronomical tax advantages.
Why?
Well, developing land, becoming a landlord, and providing housing or real estate is incredibly risky, so there needs to be incentives.
America wants houses, development, and good buildings, so it provides tax incentives to off-set the risks taken.
If you tap into buy and hold real estate investing, you can tap into the amazing tax advantaged wealth.
Real Estate Investing Taxes Explained.
There are 2 primary types of real estate investors:
Buy and hold or
Buy, rehab and sell.
There's land developers and some other things, but for the majority of people, this is it.
Buy and Hold real estate is hyper tax efficient.
Buy and Hold Real Estate enjoys:
How this works out.
One major way that businesses can build equity and reduce taxes, is to buy a building that will be owned in it's own LLC, and then a business that's subject to regular employment taxes can set up a lease agreement with that company to lease.
The regular business will get to deduct it's lease payment, and then LLC will not be subject to SE taxes on that income produced by the building.
So you shift income from a less tax advantaged vehicle, over to a passive income vehicle.
On top of that, your real estate investment will be able to utilize depreciation.
Depreciation is where you'll divide the value of everything but the land, and divide it by 27.5 years for residential, and 39.5 years for a commercial building.
Then, you'll get to reduce your taxable profits in that investment by the depreciation amount over that 27.5 or 39.5 years.
No social security taxes AND depreciation means you're able to build some serious equity and do so in a tax efficient way.
Never mind that you can borrow from equity in buildings to buy more real estate, or other really fancy accounting tricks down the road.
Did you know that in a family business, as an LLC, you can hire your kids and not pay self employment taxes?
Did you know that if you pay them up to the standard deduction, they won't owe any income taxes?
You'll need to do this correctly, and obey the rules, but setting your kids up and paying them in a formal fashion can shift income out of your super high tax rate, and go down to 0.
One thing to note is that the family business or farm rule where kids don't pay self-employment taxes till their 18 means becomes more complicated when you're a corporation.
But for those of you that are in higher tax brackets, it's possible that you'll be able to pay your kids and they'll pay tax in their own tax bracket, which is probably much lower than yours - particularly when you consider how much more beneficial the tax code is for low income earners (I guess your kids could be high earners though)
You might want to hire your kids, and it might save a ton of money.
You need to pay them appropriately, and they actually need to have a formal agreement and job.
This is a REAL job for them, not just paperwork.
But we can help you maximize this strategy.
If you have necessary business travel, you obviously know that you can write off most of that traveling expenses.
So if you had training in Orlando in February, and you work Wednesday through Friday, and then come home on Monday, can you write off the plane tickets and other things?
Long story short, there's some really neat strategies and constraints that can allow you to turn your business into a way to travel.
You can write off the costs of travel, and even find ways to bring your other employees with you like your spouse.
I'm not going to try to lay out the rules here, but I'll let you know that you might be able to write off significant amounts of travel, even if you end up spending some time NOT WORKING.
Ggame plans. How to find the next generations.
What's your plan to retire as a business owner?
THere’s a tax efficient way to exit your business, and the way of TAX PAIN.
You really think someone's going to buy your business?
Should you sell it, or should you find a general manager or new partner to slowly buy you out.
Can you keep ownership shares and outsource management so you can keep pulling S-Corp owner draws while you retire?
We can help you understand the possibilities to exit your business, and there's a great deal you can do to plan for this.
© 2019 TPV Tax Plan Ventures. All rights reserved.
