How to Save Money on Taxes as a Business Owner

Taxes are a major expense for any business owner. But there are ways to reduce your tax burden and keep more of your hard-earned money. In this article, we’ll discuss some of the strategies that Preston Anderson, a CPA, uses to help his clients save money on taxes.

Entity Structure

The way you structure your business can have a big impact on your taxes. Preston recommends that business owners carefully consider their entity structure. Here are some options to consider:

• Sole Proprietorship: This is the simplest business structure, but it also offers the least liability protection. The business owner is personally liable for all business debts and obligations.
• Limited Liability Company (LLC): LLCs offer personal liability protection for the business owner. This means that your personal assets are protected from business debts. LLCs can also be taxed as pass-through entities, which means that the business itself does not pay taxes. The profits and losses of the business pass through to the owner’s personal tax return.
• S Corporation: S corporations can offer some tax advantages over LLCs. For example, S corporations can pay owners a reasonable salary, which can help to reduce payroll taxes. However, S corporations are subject to more complex regulations than LLCs.

Hiring Family Members

If you have children who are old enough to work, you can hire them to help with your business. This can be a great way to save money on taxes. You can pay your children up to a certain amount per year without having to withhold any taxes. The exact amount you can pay your children will depend on their age and the type of work they are doing.

Retirement Plans

One of the best ways to save money on taxes is to contribute to a retirement plan. There are a variety of retirement plans available for business owners, including SEP IRAs, SIMPLE IRAs, and solo 401(k)s. Contributions to these plans are tax-deductible, and the earnings on the money in the plan grow tax-free until you withdraw it in retirement.

Record Keeping

It’s important to keep good records of your business income and expenses. This will help you to ensure that you are taking advantage of all the tax deductions and credits that you are entitled to. It will also make it easier to file your tax return and avoid any potential audits.

Tax Mistakes to Avoid

• Not Filing Your Taxes: This is the biggest mistake you can make. Even if you think you owe taxes, you should still file your return. The IRS will penalize you for not filing, and the penalties can be significant.
• Filing on Schedule C: If you are a business owner, you should not file your business income and expenses on Schedule C of your personal tax return. Schedule C is for sole proprietors who have no employees. If you have employees, you should file Form 1120 (for C corporations) or Form 1120S (for S corporations).

By following these tips, you can save money on taxes and keep more of your profits. However, it’s important to note that this article is for informational purposes only and should not be considered tax advice. You should always consult with a tax professional to discuss your specific tax situation.