Let's face it: few people enjoy paying taxes. While taxes help make many of our society's comforts possible, effectively spending our tax dollars has been a challenge—and that we should pay less of them. One of the most common questions we get here at Real Wealth Solutions is, how do business owners pay less taxes?It's a valid question; most small businesses operate on a tight budget. Any funds directed outside of growing the company or paying employees higher wages means a more challenging time for the business' functionality.Fortunately, there are a few ways business owners can keep more of their hard-earned revenue in their business, and not going to the government. Here's how you can do it, too, and get on the path to prosperity.
Executive Bonus Plans
Executive Bonus Plans (EBPs) lead other options in terms of how businesses can pay less taxes. This approach means you can fun executive bonuses using tax-deductible business funds. Later, these payments can supplement retirement funds—and they're flexible, too, because:
- Holders can protect love ones with a death benefit
- Withdrawals on retirement are tax-free
- Holders can access their funds after retirement, or if/when they leave or sell their company
For example, any executive bonus is taxable income. However, it is tax-deductible for the company that pays the bonus. The bonus purchases cash-value life insurance. Once retired, the holder can make tax-free withdrawals, and with no penalties.
Whole Life Insurance
Businesses benefit from whole life insurance because it allows them to grow the cash value while the policyholder lives and has a death benefit. Therefore, business owners can safely grow their wealth without paying taxes on it. Additionally, distributions may be tax-free. Like EBPs, whole life insurance offers a tax-free retirement income, policy loans, and cash value growth.
Reduce your tax liability
If you're a small business owner, the odds are that you play many roles in keeping your company moving forward. Whether you're the sole employee or you have a small-but-growing team, you need the cash to grow beyond your current state, and taxes make that even more difficult.But one of the easiest ways to lower your tax contributions is by bringing a family member on board. You can hire your spouse, brother, sister, or even your children. The IRS gives you some wriggle room in this regard, so take advantage of this savings opportunity if it makes sense for your organization.
Plan for healthcare costs
Healthcare in the United States is expensive, and having money tucked away for unforeseen medical care is one of the smartest decisions you can make as a business owner. High-deductable healthcare coverage gives you the chance to take advantage of a Health Savings Account, or HSA. You can then lower your health insurance costs and reduce the amount of taxes you pay. This strategy saves you on pre-tax, tax-free growth, and any withdrawals that qualify for medical expenses that remain tax-free. It's a win for your health and your bottom line.
Take advantage of travel
Though most business owners aren't traveling during the COVID-19 pandemic, we realize that this is only a temporary setback. In the latter half of 2021 and beyond, we're confident that we'll see travel soaring again.If you plan to travel, make sure you take advantage of tax-deductible business travel expenses to reduce your tax contributions. While personal travel doesn't save you any money on taxes, all your business travel expenses are deductible. Have a credit card with generous frequent flier points or rewards? Those also count.The best part is that travel deductions count for both domestic and international trips. So, if you operate out of a single office in your state, you don't need to cross the Atlantic to take advantage of these tax deductions.
Related: The Top 3 Retirement Plan Alternatives for Business Owners
Keep more of the money you earn with Real Wealth Solutions
We know how difficult it can be for business owners to grow their presence within their space, whether domestically or abroad. We want to help you achieve the prosperity and financial freedom you deserve, and that can start with paying fewer taxes and putting your money back into more customers and higher income.Want to learn more about how we can help you grow the wealth you deserve through Executive Bonus Plans and whole life insurance? Schedule a call to learn how we can help you and your business thrive.