3 Ways Business Owners Can Save on 2021 TaxesSubmitted by JMB Financial Managers on June 21st, 2021
Did the 2020 tax season leave you feeling blue? For many small business owners and independent contractors like yourself, the sting of the tax bite is just wearing off. Now is the perfect time to recoup and revamp your tax strategy for 2021. In this article we’re going to discuss three ways business owners can save on taxes in 2021:
- Start a Retirement Plan
- Provide Fringe Benefits to Employees
- Evaluate Your Business Structure
Start A Retirement Plan
Implementation of a retirement plan has many different tax benefits and yet only 63% of small businesses (with 25-49 employees) offer retirement plans. One of the basic benefits from setting up a retirement plan includes contributions that can be deducted for business income-tax purposes. In addition, earnings on the plan’s investment accumulate tax free. When considering a retirement plan you have quite a few options available to you including:
- Simplified Employee Pensions (SEPs)
- Savings Incentive Match Plan for Employees (SIMPLEs)
- 401(k) plans
- Profit Sharing plans
- Defined Benefit (Pension) plans
Each plan has its own set of benefits and features in addition to contribution limits and set-up deadlines. For more information on each of these plans and how you can utilize them, please schedule a complimentary consultation to discuss your personal situation.
In addition, there is a federal tax credit for employers who establish a company retirement plan.
For more tax saving strategies download our free brochure, 3 Tax Saving Solutions, and get started today.
Offer Fringe Benefits
Employment tax costs can be triggered as your company grows. As an employer, you can avoid these taxes if you pay for certain fringe benefits. Some of the fringe benefits you might consider offering to your employees are:
- Health Insurance (up to a certain dollar amount)
- Long-term Care Insurance
- Disability Insurance
- Health Savings Accounts
- Commuting and Parking Assistance
There are a number of fringe benefits you can consider. To find the best fit for your business and tax situation, review the IRS’ Employer's Tax Guide to Fringe Benefits.
Choosing the Business Structure That's Right for You
The business structure you choose has a significant impact on your tax outlook. For instance, those operating as a sole proprietor or in a partnership may experience higher taxes than those operating as an LLC (Limited Liability Company) where many of the taxes can be deducted or “passed through”.
Each type of business structure comes with its own set of tax benefits, we suggest getting legal assistance in choosing the best entity for your business. For more on restructuring your business, and the tax benefits associated with different business structures, see our collection of articles on incorporating:
- Incorporating 101 – Everything You Need to Know Before Incorporating
- Should an Independent Contractor Incorporate: The Value, Money, and Legal Protection of Incorporating in California
- 10 Signs You’re Ready to Incorporate
- A Solution to Independent Contractors Biggest Dilemma: To Incorporate or Not?
Change Your Tax Outlook Today
Start sooner rather than later, it’s not too late to adjust your tax strategy get a better tax picture in 2021. If you find yourself in need of assistance, schedule a complimentary consultation with JMB Financial Managers, to discuss how you can implement new strategies to save on your 2021 taxes.
About the Author
Jack Brkich III, is the president and founder of JMB Financial Managers. A Certified Financial Planner, Jack is a trusted advisor and resource for business owners, individuals, and families. His advice about wealth creation and preservation techniques have appeared in publications including The Los Angeles Times, NASDAQ, Investopedia, and The Wall Street Journal.