When you run a small business, it can be depressing to see a large chunk of your earnings go to government dues. But you don’t have to pay that much. Payment of taxes is unavoidable, but there are mechanisms in place that can help reduce the burden. All you have to do is be smart about it. Here are some tax shelter options that are available even to smaller companies:
Bring in the Family
Since you run a small business, a good way to source talent that you can trust is to hire a family member. This can also provide you with some tax shelter options. Since you will be technically paying them a salary, you can get away with a marginal tax rate for their income. In some cases, you can eliminate it. This is mainly because of the taxes mandated by the Federal Unemployment Taxes Act.
If you hire your spouse, you may choose not to pay those taxes. Additionally, if you hire your children, then the social security and Medicare taxes on their salaries can be waived.
Using Captive Insurance
Since your business needs insurance to operate, you can use that to your advantage by using captive insurance as a way to provide financial protection and better cash flow. But it can also be a useful way to reduce tax burdens, though you’ll need a reputable captive insurance lawyer to ensure that you are doing things legally.
Captive insurance works by having a business create its own insurance company. It is a form of self-insurance for a company and it is ideal for companies that find it difficult to get insurance. As a tax shelter, you can use the premium payments to it as tax deductions but you need to be careful about it.
Provide Benefits to Employees
Additional wages can mean higher taxes. But the government encourages being kind to your employees by providing tax deductions to businesses that give their employees fringe benefits. There are several tax-exempt benefits out there like transport assistance and meal allowances. The more you give to your workers, the more tax exemptions you gain.
Be Smart About Your Expenses
It might surprise you how many expenses you can deduct as part of your business expenses. For example, your home office can be tax-deductible. Setting one up can be expensive since you have to buy a table, a work chair, and even a computer. An internet connection also has a high price tag. But all of that can be deducted from your taxable income if you kept the receipts
Another deduction that you can use is your car expenses if you travel a lot for business with it. You will have to do some calculations on its usage but if you drive around regularly for business, it can add up.
Reducing your tax burden is different from avoiding paying your taxes. There is a legal framework for it and it can be quite confusing, but you have the right to try and lower the amount of taxes you pay. The important thing is that you do it legally and properly so that you won’t have problems in the future.