Running a small business can be rewarding, both emotionally and financially. However, it is also a process which can put you in a precarious position if you are planning for retirement and you want to be able to live comfortably during your golden years.
Luckily there are a few ways to legally reduce the tax burden placed on your small business, and thus free up more money to put aside for when you retire, so let’s go over a few of the best solutions available today.
Defined benefit plans for small business owners
First of all, it makes sense to select a pension package that is actually tailored towards your needs, and a defined benefit plan could fit the bill.
This is geared towards business owners and high earners alike, and the idea is that by giving tax breaks to businesses that use them, the government will incentivize the process of saving for retirement, and thus need to do less to support people once they move onto a fixed income later in life.
You can learn more here about defined benefit plans for small business owners, and determine if this is the right route for you.
Working with family members
Another interesting option to save on tax at your small business is to recruit members of your immediate family to fill roles within the organization.
For example, the IRS eliminates the need for some taxes in the case that you employ your children within your firm, or vice versa.
Obviously there are caveats and exceptions to take into account, but it could make running your small business as a family-oriented operation more appealing.
Restructuring your business
A lot of small businesses restructure themselves as limited liability companies (LLCs) specifically because this allows them to leverage the rules and obligations of tax which apply to corporations.
For example, you could pay yourself as an employee rather than as a business owner or partner, which would mean reconfiguring how much tax is paid by the organization itself, as well as by you.
Again, this is a potentially complex move which might not suit every small business, but if the scenario is right then it is an avenue worth looking into.
Claiming expenses correctly
Plenty of self-employed individuals as well as small business owners do not take full advantage of being able to claim allowable expenses which can then be deducted from their tax bill, rather than leaving them out of pocket twice over.
Travel expenses are a great example of an area in which organizations at the smaller end of the scale can often be less efficient when it comes to making claims.
Of course there is a fine line to walk here, and you don’t want to overegg your expense claims without justification, as this could come back to bite you. Working with an experienced, accredited accountant, if you do not have a professional to fulfill this role in-house, is a must in this context.
Most importantly of all, if you want to reduce your small business taxes, then you need to go all-in with tracking your spending, monitoring your expenses, and keeping the paperwork which will help you to prove the claims you make when the time to file arrives.
Modern accounting software makes all of this a lot easier, and is a must-have for up and coming organizations in particular.
You still need to motivate yourself to actually use the tools at your disposal to your advantage, and the promise of being able to save more for retirement could be a good incentive.