How to Reduce Taxes in Your Solo Business
There are many unique pros and cons of running a business where the sole employee and owner is you. One of the best things is that you get to keep all of the profits! Unfortunately, federal or state taxes on local businesses can cut deep into your livelihood if you’re not careful.
Keep Track of Expenses
The number one way to avoid running afoul of the IRS is to write everything down. Do your best to keep receipts for absolutely everything business-related. Keep excellent financial records. Your business expenses will be especially important to know for tax deduction purposes – because all business expenses are deductible. With each tax deduction that you file for, the overall level of income that the government can tax will go down. Being thorough and honest is your best bet for a higher paycheck.
Open a Retirement Account
There are many options for different retirement plans and accounts, and all of them can factor into your taxes. A SEP-IRA is ideal for solo entrepreneurs that want to keep things simple. With a SEP-IRA, you can deduct up to 25% percent of your net income, if you’re self-employed. You can also do owner-only 401(k) plans or owner-only defined benefit plans. Ultimately, the choice is yours – but it’s a good idea to talk to a financial professional to get a good idea of which option would be best for you, and to better understand how each option would impact your tax situation in different ways.
Put Away Savings for Healthcare
Similar to retirement accounts, there are also kinds of savings accounts that are made especially for saving money for healthcare or health insurance. Having a high-deductible health plan option with your health insurance can be very useful – since the opening of a health savings account would then enable you to save money for future healthcare needs. Medical fees are on the rise – so all business owners need to keep that in mind. Among other advantages, withdrawing from an HSA for medical reasons is not taxable.
At the end of the day, the technical legal maneuvers that will be best for your business will be slightly different for everyone else’s. The many factors surrounding your circumstances should decide how you go about reducing taxes for your business. Make sure to do the proper legal and logistical preparation, and make sure to consult with other business owners in your market to find the best option for you!
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