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2023 Year End Tax Saving Strategies for US Small Business Owners

Year 2023 is near ending. Below are some of the tax planning/saving strategies that you as small buisness owner should discuss with your accountant. Whether you are sole proprietor, a single member LLC or a S Corp owner, these strategies could save you hundreds to thousands of dollars in taxes.

1. Convert your single member LLC to S corp

If you are a single member LLC owner, you pay 15.3% self employment taxes on your net profits. This is in addition to the regular federal and state income tax you on any other income on your tax return. If not all, you can save significant portion of it if you convert your business to an S corp. Good news is that you could do so retroactively effective Jan-01-2023.

2. Self employed health insurance deduction

As S corp owner, you could have their business pay health insurance directly on your behalf or reimburse to you. It becomes a deductible business expense for your business. Since being fringe benefit, it needs to be reported on your W-2 but good news is that it is not subject to social security and medicare taxes. Plus you also get to deduct this on your personal tax return.

3. Self rental

You can use your home for business meetings for upto 14 days in 2023 and have your business pay you rentals on market rate. You can write off 100% of this amount as rental expenses in your business return and it completely tax free to you on your personal return.

4. Write off expenses for board meetings

You can write off 100% of travel, stay and meals expenses in connection with conducting board meetings. Board of directors or advisors could consist of your close friends and family members. It is worth noting that details of board of directors or advisors is not required to be reported to IRS or State.

5. Retirement planning

As a business owner you can plan how much retirement plan contributions you and your business want to make for the year. There are different contribution options available like Solo 401k, SEP IRA, Roth 401k.

6. S corp owners reasonable compensation

Law requires that S corp owners should pay themselves a reasonable compensation from the business. With proper planning you could save significant amount in social security and medicare taxes by paying yourself not too much from your business.

7. Paying kids from your business

Employing kids in your business and paying them for the part time or full time work they perform for your business is a great way to reduce your overall family tax burden. This also provides option for your kids to open roth IRA account early. Please check your state employment laws on hiring kids under age 18.

8. Family management company - pay kids under age 18 to save on FICA Taxes

If you pay your kids salary from your S corp or C corp, you need to withhold and pay FICA (social security and medicare) taxes which is 15.3% of wages. You can rather consider paying your kids from a family management company (FMC). FMC can be a sole proprietorship or LLC (owned by either parent) that could provide management services to your businesses as well as your rental properties for which your businesses could pay management fee to FMC. FMC can then in turn pay your kids for the ligitimate services they provide. And if the amount of payment is less than the amount of standard deduction for the year, you dont need to withhold any taxes (Income tax, FICA, FUTA, SUTA) nor file any payroll forms with IRS or state if the kids are under age 18.

9. Backdoor ROTH IRA

Roth IRA offer greater investment options than a traditional IRA. Plus your money grows tax free and withdrawals are tax free too. Backdoor Roth strategy can help you want to contribute to Roth IRA but are not able to do so due to your income levels. You will first make a non-deductible contribution to traditional IRA and then within 30 days, you will convert the amount to a Roth IRA.

Notes & Disclaimers: 1) Above article is for the purpose of reference/information only. Please consult with your tax advisor to discuss your specific tax situation. 2) Tax planning and preparation are two different engagements. If you hire a tax preparer, the terms of the engagement including fee may not include tax planning.


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