As I’m writing this COVID-19 is in full force and small-businesses are struggling right now, but there are things that can help, like saving on taxes so you have more money to offset the financial burden of what’s happening now. If you're reading this, you're likely familiar with some of the more obvious benefits of being a small business owner - such as setting your own schedule, working in your robe and not having a boss to tell you what to do, but what you may not know is there are also amazing financial benefits. With a few helpful tips in hand, I’m hoping you can save more of the hard-earned money that you are making in your business:
You can save MORE towards Retirement
A common misconception I hear from clients is that without having a 401(k) you can’t save for retirement. I have some good news for you – it’s not true! Business owners actually have special retirement accounts that allow them to save for retirement!
Enter the Solo 401(k) and SEP IRA for business owners that do not have employees. You can contribute up to $57,000 in 2020 and take that as a tax deduction - wow! I prefer the solo 401(k) over the SEP-IRA for a lot of reasons, but will save that for, another blog post.
If you do have employees, you can create a business 401(k) plan or Simple IRA for very low cost!
The QBI Deduction: a 20% tax deduction for business owners!
Yes, that’s right! A 20% tax deduction you can shave off your income. The QBI Deduction has income thresholds for certain types of service businesses such as health, financial, consulting, etc., so it’s VERY important to plan here to ensure you get the full 20% deduction. I work with many clients on potential strategies to help reduce their income and maximize this deduction. Speak to your CPA or hire a financial planner that understands taxes.
Mileage
Did you know you can claim a 57.5-cent (2020) tax deduction for every mile driven for your business? That can add up by the end of the year. It’s worth noting that the IRS requires that you track your mileage and have accurate records. Normally, commuting does not count (i.e. going from your home to your office), but if your home happens to double as your office then you’re in business! Convenience is our friend, so there are free apps that help you track this to ensure you meet the documentation requirements such as Mileage IQ and Quickbooks Self-Employed. Take advantage of this perk so driving to client meetings, business lunches, going to the office supply store, business travel/airport etc., can start to add to your wallet.
The Home Office Deduction
To reap the benefits of this deduction, there are a few requirements to be aware of. First, you’ll need a dedicated space in your home or apartment exclusively for business and your home is your main office. This does not mean you sit at your dining room table to work before family dinner. Yes, if you rent an apartment you can claim this deduction too. Whether you have an S Corp, Partnership, or file a Schedule C depends on how you go about taking the deduction - so speak with your CPA.
Remember, the more money you can save in taxes is the more money you can put towards your financial goals and dreams. Do I have you day-dreaming of that robe-as-uniform lifestyle yet?
Create an LLC
Last but not least I want to add one last tip. Owning a business comes with risks, like being sued (ugh), but you can be protected by creating an LLC. Keeping this separation between your personal finances and business finances can provide you with liability protection. By creating an LLC, the business is only liable for its debts and liabilities, not you as the owner. By not registering as an LLC, you are at risk. It’s a small fee to create an LLC compared to what could happen if you aren’t. I always want you to be protecting your net worth you are working so hard to build, so register your business as an LLC. Now that we are protecting it, let’s work on building it!
Hope you enjoyed these few tips and tricks. Want someone in your corner to help you with the above or speak directly with your CPA to ensure you are maximizing these benefits? Schedule a free, 30-minute call today!
