As a small business owner, you’re likely focused on growth, customer satisfaction, and managing day-to-day operations. But how much attention are you paying to your tax strategy? If you’re like the majority of small business owners, you might be overpaying in taxes each year—potentially by thousands of dollars.
The Cost of Poor Structuring
Did you know that over 23 million small businesses in the U.S. are not structured properly to maximize tax benefits? This means billions of dollars are being unnecessarily handed over to the IRS each year. Your business structure—whether it’s a single-member LLC, DBA, S Corporation, or C Corporation—directly impacts your tax liability. For instance, a single-member LLC or DBA might be easy to manage, but it could result in higher self-employment taxes. While an S Corporation can reduce these taxes, it might not always be the best fit depending on your specific circumstances. A partnership or even a C Corporation might offer better benefits, particularly if you have substantial assets or plan to sell property in the future.
The Importance of Payroll Strategy
If your business is structured as a pass-through entity, how much you pay yourself in wages plays a crucial role in optimizing your Qualified Business Income (QBI) deduction. Paying yourself too much could reduce this valuable deduction, while paying too little could attract unwanted attention from the IRS. Finding the right balance ensures you’re maximizing your tax benefits while staying compliant.
Don’t Overlook Retirement Contributions
Retirement planning is another area where small business owners often miss out on tax savings. Depending on your income, certain retirement plans offer significant benefits. For example, high-income earners can take advantage of a cash balance plan, which allows for large contributions, thereby reducing taxable income considerably.
Maximize Your Deductions
Health insurance premiums and home office deductions are frequently overlooked, yet they can provide meaningful tax savings. However, these deductions must be handled correctly to avoid issues during an audit. For example, if you work from home, the IRS allows for a home office deduction—but it must be properly documented and meet specific criteria to be valid.
Take Action: Review Your Tax Strategy
If you haven’t reviewed your tax strategy recently, now is the time. A thorough evaluation of your business’s tax situation could uncover significant savings. Consulting with a tax professional can help diagnose potential issues and optimize your business structure to minimize tax liabilities.
By taking these steps, you can stop overpaying and keep more of your hard-earned money in your pocket. Start by booking a consultation with a tax professional who can guide you through the process and help you make informed decisions.
Ready to take control of your business finances? Schedule a free 30-minute consultation today to see how much you could be saving.
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