How Savvy Female Business Owners Can Take Advantage of Tax Planning to Save Thousands Off Their Tax Bill Each Year
Planning for the future is impossible if you don’t know where you are today. But we all know how critical having a good financial plan is for your future success. One good place to start is with tax planning (considering that taxes are one of the largest expenses in most business/individual finances!).
Tax planning is the analysis and arrangement of your financial situation to maximize your tax deductions and minimize tax liabilities. Tax planning is a legal way to ensure efficiency in the operation of your business and save you thousands when it comes to filing your taxes.
If you are confused about the future, fear not, because Shauna A. Wekherlien, CPA, MTax, CTC, CTS (AKA the Tax Goddess) is here to share five strategies for reducing your tax burden. And when you maximize your money, you can use those overpaid tax funds for whatever goal/areas of your life that you want to maximize.
1) Build your financial team.
While you may be tempted to hop over to Google and learn everything you need to know, Shauna’s first piece of advice is to surround yourself with professionals who understand and specialize in the legal loopholes that save people money. She says:
You cannot rely on the internet when trying to save yourself upwards of $37,000 in tax breaks. You will want professional help.
You wouldn’t leave your child to Zoom with the nanny, so why would you trust Google to give you tax advice for your business?
Your financial team should consist of (at a minimum):
- A bookkeeper.
- A certified public accountant or CPA.
- A tax planning strategist.
While you may be wondering if you really need all three, I can promise that if your goal is to get wealthy and stay wealthy, you do! Every successful and wealthy person looks at these three types of financial experts as essential. And if you find a service provider with more than one credential (e.g., some Certified Tax Strategists are also CPAs), consider it a bonus.
Building your financial team with the most qualified people will save you time, energy, and money. Then you will know what loopholes are worth your attention and which ones aren’t.
2) Know the most common deductions and credits.
There are some obvious ways to save on your taxes and then there are the more obscure ways that fit niche situations. Knowing the most common deductions and credits will give you a good head start when working with a tax planning strategist.
Deductions are subtractions for what you owe the IRS based on business expenses or filing status. Credits are dollar for dollar reductions in your tax bill.
Here are some of the most common tax deductions and credits you’ll want to understand:
- Student loan interest deduction.
- American Opportunity Credit.
- Lifetime Learning Credit.
- Child Tax Credit.
- Earned Income Credit.
- Capital loss deduction.
- Charitable donations deduction.
- Mortgage interest deduction.
- Saver’s credit.
- Self-employment expenses deduction.
- Home office expenses.
- Deductible Auto Expenses.
3) Utilize home office deductions.
While many small business owners work from home, too few actually take the home office deduction. Home office deductions are one of the easiest, fastest, and most misunderstood ways to maximize your savings from 2020 (thanks COVID for making us all work from home!).
Shauna advises you to:
Save your receipts of purchases you made for your business when your home is your office because even small stuff, like pens, paper, ink cartridges, lawn care, pest control, even your repairs on your kitchen could become write-offs, which add up to tons of savings.
Creating your own business and working from home doesn’t have to create imbalance in your life. Save money and stress by utilizing legal loopholes where you can.
4) Maximize retirement savings.
If you work for someone else, make sure you max out your 401K each year to tuck money away, so it is protected from the IRS and waiting for you when you retire. If you work for yourself, and you don’t have a corporate 401K yet, you are going to have to get creative. This is where options such as the saver’s credit, Individual Retirement Accounts (IRA), and the Infinite Banking concept can help.
These concepts allow a tax strategist to help you save much more than the standard contribution of $6k/year. With some of these concepts, you can put away more than $250k/year - better yet, in some cases, completely tax-free for life!
This is a big one for Shauna:
I tell all my clients who run their own businesses to invest in some sort of retirement (IRAs, a solo 401(k), using insurance for tax-free retirement - whatever it is! There are many pros to living an entrepreneurial lifestyle, but one of the biggest cons is that no one is going to 'take care of you' in retirement - you need to prioritize your own retirement and build it the way you want to see it.
Not only does investing for your future give you a cushion, retirement type accounts are key to building non-taxable income.
5) Borrow money from your business.
Shauna’s last piece of advice is to save money by borrowing money from your business. Many business owners do not realize they are entitled to borrow money from their businesses on a no- or low-interest basis. This means you could save anywhere from 3-24% on average over other borrowing methods like credit cards or bank loans.
The loan does need to act like a proper loan, with payments and a document agreement. But as long as you maintain the loan properly, the IRS will not challenge it.
You could borrow from your business to pay down debt, for example. This is also a great way to invest in assets outside of your business such as real estate, purchasing a vehicle, or financing a home remodeling project. Borrowing smart is actually one of the best ways to save money while building wealth.
At the end of the day, having a strong financial plan and team will work to ensure that your money goes where you want it to. With Shauna’s advice, you’ll be saving more and paying less.
[Related: What Does Your Tax Style Say About You?]
Jenny Johnson works for Brava Digital Marketing.
Shauna A. Wekherlien, CPA, MTax, CTC, CTS, the “Tax Goddess,” is an author, speaker, investor, and a highly sought-after tax strategist whose reputation has been built on 20+ years of experience and implementing innovative tax solutions for individuals and businesses. She has been featured on many news and radio stations (CBS, NBC, FOX, ABC, Sonoran Living, The List, KFNX, KFYI, etc.), as well as in many written publications (CNNMoney, The Arizona Republic, Phoenix Women, AZBiz, etc.). She has won multiple awards for her ingenuity, leadership, and strength as a female leader in Arizona. Learn more about her program here.
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