Year-End Tax Strategies for Small Business Owners

Many Small Business Owners are weary about their finances in today’s economic climate. However, there are still ways to reduce your tax bill.

Here’s a list of our Top Five Ways to Reduce your Tax Bill

Roth IRA conversions
In a down market, converting Roth individual retirement accounts is a popular way to transfer pre-tax IRA money to an after-tax Roth IRA, which provides future tax-free growth. You do have to pay taxes today, which could be a problem. The benefit of the conversion is that you can buy more shares for the same dollar amount, and you may owe lower taxes on the conversion. This is something you should discuss with your financial planner to determine if this is right for your situation.⁴
Explore Tax Loss Harvesting
Tax Loss Harvesting uses brokerage account losses to offset other profits. When losses exceed gains, subtract $3,000 from regular income, and carry the rest forward for future years. Financial planners suggest using this technique for declining fixed-income assets, such as bonds. Again, it would be best if you planned with this suggestion because there are rules that prevent you from buying similar assets 30 days before or after the sale.⁴
Reduce your Adjusted Gross Income (AGI)
The easiest way to lower your AGI is on your personal tax return. Itemized deductions include mortgage, property taxes, charitable donations, and contributions to retirement accounts or Health Savings Accounts (HSA). Bonus: you can purchase over-the-counter medications, feminine hygiene products, and vision services, as well as pay for co-pays with your HSA.^1,3
Hire Your Family
Labor is expensive, but it is a little different if it comes from your spouse or children. Minor children can work tax-free; just follow IRS income tax thresholds. Also, adding your spouse to the payroll can double your retirement plan contributions. Unfortunately, you still must pay taxes on their income, but you’re helping them increase their future social security benefits. Bonus: Set up a 529 Plan using your child’s income to save for college or trade school.^2,3
Are You Using the Right Business Entity?
If you own a business, it is essential to make sure you are using the correct business entity for your specific tax situation. Every business entity has pros and cons, so talk with your tax planning professional to ensure your business structure is the right one for your business.³