What are Tax Strategies and Who are They For?
At the most basic level, tax strategies are ways to reduce taxes. In reality, implementing tax strategies requires thorough tax planning while taking into account a business owner’s financial goals and personal needs.
The tax strategies we recommend are for profitable businesses whose owners have taxable income. If a business is experiencing losses, it is unlikely to benefit from or be able to utilize the tax strategies that profitable businesses leverage.
Tax strategies are most advantageous when they entail an adjustment to existing operating expenses, enabling tax-free income for business owners, while at the same time reducing taxable income.
Some examples of these tax strategies are:
Business owners can rent out their primary residence or vacation home to their business for up to 14 days each year. The home can be located anywhere in the United States, and the income from the rental is excluded from the owner’s taxable income.
Home Office Deduction
To qualify for a home office deduction, you must use part of your home in one or more of the following ways:
- Exclusively and regularly as your principal place of business
- Exclusively and regularly to meet with clients, patients or customers in the normal course of business
- On a regular basis for certain storage use
If you’re a parent who owns your own business, you have an opportunity to leverage a tax deduction for hiring your children as employees. If your business is a sole proprietorship or a spousal partnership, the hiring children tax strategy offers a few benefits to take advantage of:
- Payments to your children who are under 18 are not subject to Social Security and Medicare taxes.
- Payments to your children who are under 21 are not subject to Federal Unemployment Tax Act (FUTA) taxes.
An accountable plan allows employees, including owner-employees, to be reimbursed for expenses paid out of pocket. The expenses become deductions to the business, and the employee or owner-employee can be reimbursed, creating non-taxable cash flow to them. Without an accountable plan, the payments to the employee or owner-employee could be considered additional wages by the IRS.
Employee Achievement Award
In general, awards given by employers to employees, whether paid in cash or property, are deductible to the employer. In most cases, the value of the award will be taxable income to the employee, but certain gifts of tangible personal property can be excluded from their income.
These examples represent just a few of the tax strategies we recommend. Other intricate strategies are available for clients, as each situation is unique and demands a customized tax plan to align with their financial goals and personal needs.