Everyone who has a business likes to find ways to pay fewer taxes, and you should also do the same. While it’s true that online businesses often have far fewer expenses than brick and mortar businesses, you can still take advantage of a few ways to lighten your tax burden. Sometimes you might just need to think slightly out of the box.
- Hire Your Kids – When you hire your own kids, you can pay them a set amount each year, tax free. The trick here is to take that money and use it for your child’s expenses. So, if you can pay them $6300 for the year tax-free, transfer that money to an account that can then be used on the child’s expenses.
- Make the Right Tax Elections – Make sure that you keep your CPA informed of your business activity by ensuring every purchase is booked appropriately. For example, you may be able to reduce your tax liability for any number of things you have bought in order to do business.
- Start an HSA – If you get a high deductible insurance plan, your business can qualify to set up an HSA, which is a health savings account. The money is put in the account pre-tax and then can be used to pay for your medical bills.
- Provide Health Insurance – As a corporation, you can offer your employees health insurance. Even if it’s just you and your family, you can get a health insurance plan that is fully deductible for your small business.
- Provide Other Fringe Benefits – Even if you have no real employees but yourself, your spouse, and your kids, once you incorporate you can do a lot of things that sole proprietors can’t do as easily. For example, you can pay yourself a salary, deduct all your taxes, and fees from that pay, as well as offer yourself and everyone under that business umbrella various fringe benefits - from paid meals on late nights to life insurance depending on what is allowed.
- Maximize Your Retirement Contributions – One of the first ways you should lower your tax liability is to contribute the max to your retirement accounts every single year. You can get more information about that idea from your CPA, who can even help you set up retirement accounts with your banker.
- Use Your Home Creatively – If you have a beautiful home, one way to lower your tax liability is to rent it out to the company and host a company retreat. It’s an excellent way to get close to the people you work with and your customers in a fully tax-deductible way.
- Hire a Knowledgeable CPA – When you hire a CPA, interview them thoroughly. You want someone familiar with your type of business. If they don’t know anything and have not worked with solely online businesses before, they may have no idea. Just because someone has a CPA beside their name doesn’t mean they’re knowledgeable.
- Remember Carryovers – If you’ve had losses in the past, those can be carried over. Some people forget to do it or don’t do it. Ask your CPA how to best handle carryovers in order to reduce your tax liability.
- Conduct End-of-Year Planning – If your business sends out invoices, try not to send any out in November and December and instead send them January 1st. Only do this if it won’t affect your cash flow though because you don’t want to have shortages.
The best way to reduce your tax liability is to conduct your business legally and ethically and then ask your tax lawyer or CPA to give you ideas about reduction of taxes. It may be something as simple as paying your kids or remembering to carry over losses.
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