5 Tax Reduction Tips For Small Businesses with Laura Caiafa, #81
Tax-planning for small businesses is a critical aspect of their success. After all, the better you plan the better things tend to work out. On this episode, I’m once again joined by tax expert Laura Caifa to discuss something new: tax reduction strategies for small businesses. We go over everything from the deductions you should keep track of to why it may be time to transition to an S-Corp.
You will want to hear this episode if you are interested in...
Everything small businesses should keep track of [1:17]
Deductions you should be taking 100% of the time [6:02]
Why a Health Savings Account is a retirement game-changer [8:41]
What you need to know about tax-free rental income [12:40]
Reasons you should consider moving to an S-Corp [14:35]
What you track today could save you money tomorrow
Transitioning from payroll employee to small business owner can be an overwhelming process. Especially when it comes to tax season. The best advice anyone could give in this area is to keep track of EVERYTHING. But what is the best way to do that? GOne are the days of using a shoebox to keep track of receipts. Or worse, your memory. Accounting software like QuickBooks will bring you and your accountant some much-needed stress relief.
However, income and expenses aren’t the only things you need to keep a record of. Mileage can be a huge tax break if tracked properly through one of the many phone apps that do so. Just make sure the mileage you’re tracking is business mileage and not commuting mileage going to and from the office. Another deduction every small business owner should be tracking is meals. As of 2021, 100% of business meals are deductible if they are purchased at a restaurant. There are a slew of great apps that can save and organize your receipts and let’s be honest: why wouldn’t you want to write off every meal you can? It’s a major perk of owning your own business.
Tax seasons best-kept secrets
While these aren’t specifically for small business owners, there are two tax strategies Laura and I talked about that I want to highlight. The first is using a Health Savings Account (HSA). Most people know how HSAs work. Any money you put into it takes a pre-tax deduction, but any money withdrawn from the account for qualified medical expenses is not taxable. However, most people are unaware that you can use an HSA as a retirement strategy. Laura and I both recommend throwing money into a high-deductible HSA qualified plan and then letting it sit. Cover any affordable out-of-pocket costs so that the account continues to grow tax-free. That way when retirement comes and income decreases, you can reimburse yourself from years prior by saving old receipts. You can even invest the money back into a stock fund if your plan allows, rather than letting it sit there earning zero interest.
The second tax strategy is tax-free rental income. I have to admit, I was unaware of this until my conversation with Laura, but it’s one of my new favorite things. The general rule is that if you rent your residence or a residence you own for 14 days or less, the income from that rental is tax-free regardless of how much it is. Meaning you could rent out that vacant vacation home for two weeks out of the year and get a sweet tax-free boost to your income.