November 13, 2020
Our tax team helps small business owners make year-round preparations for the next season.
There are very few things, if any, that a small business owner dreads more than tax season. Running a small business is no easy task, and understandably, you want to save as much of your hard-earned money as you can. While paying taxes is inevitable, our experts recommend these four tried-and-true steps to minimize your tax burden as much as possible:
- Employ a family member. Hiring a family member may come with its shortcomings, but it’s still an easy way to reduce your tax burden. For example, if you employ your spouse, they will be subject to income tax withholding and social security and Medicare taxes, but not to the FUTA tax. Additionally, a minor child who is employed by their parents in a trade or business is not subject to Social Security and Medicare taxes if the business is a sole proprietorship or partnership owned by both parents.
- Use your retirement plan to your advantage. While you won’t have a 401(k) plan matched by an employer, there are many similar options for self-employed individuals. If you have no employees, or work with only your spouse, a one-participant 401(k) plan will allow you to contribute up to $57,000 per year to your retirement. Similar plans include an SEP plan, IRA or ROTH IRA, or 403(b). These contributions are all tax-deductible.
- Defer your income. Paying your bills just a few days later than you normally would, towards the end of the year, will defer your taxable income into the next year. For example, if you would get paid in the last week of December, you’d have to immediately declare that income for the current tax year. However, getting paid in the first week of January means you wouldn’t have to declare that income until the next year.
- Deduct business travel expenses. Expenses incurred on business trips unrelated to entertainment are tax-deductible. However, the criteria for the specific expenses you may write off can be confusing, so please reference this IRS guide for a full understanding.
Our experts at Frank W. Kapitza & Associates help small business owners and self-employed individuals minimize their income taxes with year-round preparation. Contact us today at 973-276-0650 to set up a consultation!
