The 12 Most Valuable Tax Deductions For Small Businesses (Do This Now!)

Toby Mathis Esq | Tax Planning & Asset Protection・2 minutes read

Different small business setups like sole proprietor, S-Corp, C Corp, or LLC have varying tax implications. Sole proprietors may benefit from choosing S-Corp or C Corp for lower audit rates and tax payments, with opportunities for tax deductions and reimbursements under accountable plans.

Insights

  • Sole proprietors may benefit from transitioning to S-Corp or C Corp due to lower audit rates and tax liabilities, highlighting the importance of choosing the right tax structure for small businesses.
  • Utilizing accountable plans for reimbursing business-related expenses can lead to significant tax benefits, including tax-free reimbursements for items like cell phones, internet, and home office costs, emphasizing the value of strategic expense management for maximizing tax advantages.

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Recent questions

  • What are the different small business tax structures?

    There are various small business tax structures, including sole proprietor, S-Corp, C Corp, or LLC taxed as S-Corp or C Corp.

  • How can small businesses maximize tax benefits?

    Small businesses can maximize tax benefits by utilizing significant tax deductions, accountable plans for reimbursable expenses, and structuring their business setup efficiently.

  • What expenses can be reimbursed under accountable plans?

    Expenses such as cell phones, internet, home office costs, and more can be reimbursed under accountable plans, providing significant tax benefits for small business owners.

  • How can home office expenses be reimbursed?

    Home office expenses can be reimbursed through accountable plans, including direct and indirect costs related to home office use, providing tax benefits for small business owners.

  • What tax benefits can family involvement in the business provide?

    Involving family members in the business, such as having them sit on the board or work for the company, can provide tax benefits and deductions, enhancing the overall tax efficiency of the business structure.

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Summary

00:00

Tax Benefits of Small Business Structures

  • Different varieties of small business setups for tax purposes: sole proprietor, S-Corp, C Corp, or LLC taxed as S-Corp or C Corp.
  • Sole proprietors face higher audit rates and tax payments, making S-Corp or C Corp more beneficial.
  • Tax structures primarily revolve around S-Corp or C Corp, with distinct differences in tax treatment.
  • Significant tax deductions for small businesses are crucial for maximizing benefits.
  • Partnership structures are akin to sole proprietorships, with similar rules applying.
  • Accountable plans allow companies to reimburse owners for business-related expenses.
  • Reimbursable expenses under accountable plans include cell phones, internet, home office costs, and more.
  • Reimbursements under accountable plans are not taxable for employees, providing significant tax benefits.
  • Direct and indirect costs related to home office use can be reimbursed under accountable plans.
  • Renting out a home for business purposes for up to 14 days annually can be tax-free for owners.

12:39

Maximizing Business Expense Reimbursements and Deductions

  • Board of directors involve people related to the business, watching for the day.
  • Consider third-party fees for services like meeting rooms, data, and computers.
  • Personal experience with audits costing around $52,000 over 25 years.
  • Home office setup includes selling internet and automobile mileage reimbursement.
  • Reimburse mileage based on the current rate, track with apps like Mile IQ.
  • Only buy a vehicle for business if used over 50% of the time for at least five years.
  • Equipment expenses, including computers and phones, can be reimbursed under section 179.
  • Health insurance deductions vary based on business structure, with C Corps offering more benefits.
  • Travel expenses can be fully reimbursed if over 50% of time spent on business activities.
  • Education expenses can be reimbursed if they directly benefit the existing business or prepare for a new line of business.

24:35

Maximize Tax Benefits Through Strategic Business Setup

  • Reimbursement for business expenses incurred over the last year can be obtained by writing a check and setting up a new company, allowing for immediate cash back.
  • Organization costs, such as paying accountants and attorneys, state filing fees, etc., can be reimbursed up to $5,000 per organization for business entities.
  • Funding retirement plans, like 401(k) and defined benefit plans, can allow for substantial contributions, potentially reaching up to $1,000,000 annually with the guidance of an actuary.
  • Defined contribution plans enable defining the amount one can contribute, with the ability to defer the entire income below the annual threshold.
  • Paying wages to family members for services rendered can be a tax-efficient strategy, with the possibility of deducting these payments.
  • Paying oneself a wage, especially in an S-Corp, is essential to avoid self-employment tax, with about a third of profits needing to be paid as a wage.
  • S-Corps benefit from a 20% qualified business income deduction, while C-Corps do not qualify for this deduction due to their tax structure.
  • Involving family members in the business, such as having them sit on the board or work for the company, can provide tax benefits and deductions.
  • Setting up a business structure, like an S-Corp, can offer significant tax advantages and deductions compared to being a sole proprietor, emphasizing the importance of proper business setup for tax efficiency.
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