As any owner can attest, growing and maintaining small business profits is a constant battle. However, by understanding and utilizing some business-friendly tax loopholes, savvy small business owners can find ways to keep a lot more of their hard-earned capital.
Here’s a look at five legal tax loopholes and tricks that can be a big help for small business owners.
The Benefits of S Corporation Status
S Corporation status can be a major money saver for small business owners who are already operating successful and lucrative businesses. An owner of an S Corporation can split total business profit into wages and “dividends.” Business owners can set wages for themselves and their employees at Fair Market Value and pay the remainder of profits in the form of a dividend, which is not subject to the 15% payroll tax.
For example, if an S Corporation makes $100,000 per year in profits, but pays out only $40,000 of that profit in wages, the Corporation saves $9,000 annually by not paying the 15% tax on the remaining $60,000 paid out in dividends.
Manipulating State Tax Nexus
Some states have a much more business-friendly tax code than others, and understanding which actions establish tax nexus (sufficient physical presence to necessitate tax payment) and which don’t in a given state can allow businesses to avoid paying higher state taxes.
State tax laws vary from state-to-state, but by avoiding owning property in a particular state, having employees in a particular state and/or booking sales in a particular state can all help to avoid establishing unfavorable tax nexus in that state.
Deduct Medical Expenses via a Medical Reimbursement Plan
Out-of-pocket medical expenses are…
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