Best Small Businesses Tax Planning And Investment Tips

Author: Kat Sarmiento

Do you want to learn the best small business tax planning and investment tips in 2022?

For small business owners, smart tax planning and smart investments are a must, especially when you’re trying to skyrocket your business growth.

In this post, we’ll show you the best small business tax planning and investment tips in 2022 so that you can skyrocket your business growth.

6 Small Business Tax Planning And Investment Tips

Small business tax planning involves a lot of detailed work, from working with accounting teams to building a long-term financial plan.

If you want your small business to get more out of your earnings, tax planning with professionals should help you build better-appreciated assets.

Here are 6 small business tax planning and investment tips that you need to consider if you plan on getting more out of your finances:

1. Consider A Tax Status Change

If you’re a small business owner, it’s crucial to remember that you have business structuring options that can help change your tax status.

In the United States, you can pick from several business structures, form an LLC, single proprietorship, partnership, C corporation, or S corporation.

You have likely outgrown the advantages of your current business structure. It’s best to change your business structure to a more suitable one.

For example, if you are looking for a Qualified Small Business Stock exemption, you need to move from an LLC to a C corporation.

Businesses can file for a Form 8832 with the IRS if they elect to move from their current business structure to another.

All pass-through companies, which means businesses that are anything but a C corporation, don’t pay an income tax.

These businesses, however, pass through to the owner’s individual tax returns.

The highest tax bracket for pass-through business owners goes at a hefty 37%, with a 20% tax deduction for qualified business income for certain LLCs.

That puts their tax rate at a maximum of 29.6%, which can still be hefty. Changing your business tax structure can also help you minimize taxes.

2. Employ A Family Member In Your Business

Some business owners think that hiring family members is risky. After all, they could provide insider information to competitors or breach confidentiality.

However, hiring a family member can benefit the business in terms of costs, productivity, and business reliability. 

Hiring a family member can be a smart small business tax planning move for your spouse or children.

That’s because it allows them to be paid for the work they do for you, which means you get to deduct this salary as a tax expense. 

If you need to hire a family member, you first need to determine if that person is qualified. The IRS requires certain formalities to be met before hiring someone in your business.

These include paying them a salary, which is treated as self-employment income. A family member must be an employee rather than a contractor, and they must be qualified. 

For example, if you’re hiring your child, sole proprietorship businesses don’t need to pay for Medicare taxes, social security taxes, or even the Federal Unemployment Tax Act (FUTA) tax.

The same goes for hiring spouses, so this can be a fantastic way to save a good chunk of money.

3. Defer Or Accelerate Income 

As a small business owner, you need to take advantage of opportunities that can help you improve your cash flow.

One of the biggest financial mistakes that business owners may have is not deferring income, which can help you earn more money over time as the money grows.

From a tax planning perspective, you should defer income that you can, especially if you’ll be receiving it as a tax refund. This allows you to keep more money in your company and save up for larger investments. 

For example, if you’ll be getting a refund next year, consider deferring some income. If you’re going for cash-basis accounting, you may want to delay some invoices after January 1. Doing so can defer the taxes for these invoices until the following year.

At the same time, you can further defer highly appreciated assets through several ways, including setting up a trust account.

Trust foundation strategies, including Charitable Lead Annuity Trusts and Charitable Remainder Trusts, can help you make the most out of your highly appreciable assets.

4. Invest In Assets Like Precious Metals

If you want to earn more from your small business, you should consider investing in assets.

These assets could include precious metals, crypto, real estate, stocks, bonds, or other types of assets.

Investing in assets can help you earn more from your earnings, which can then improve your cash flow.  

Investing could also help you expand and diversify your portfolio. If you invest in the stock of another company, you could earn dividends, which can be a great way to earn passive income.

Investing in, for instance, a precious metals IRA could also help you avoid paying taxes.

If you invest in these physical assets that appreciate in value, your earnings will be taxed at a lower rate.

Also, you could avoid capital gains taxes if you sell your assets, which could mean more savings on your tax bill. 

5. Save For Retirement 

As a business owner, you need to save for retirement so that you can have a source of income when you retire.

It’s important to start saving for retirement as soon as you have the money; otherwise, you might never have enough money when you’re older. 

Many small business owners fail to save because they are worried about their current income.

However, saving for retirement is essential, especially if you have other financial obligations, like a mortgage.

You can start by putting some of your money into a 401(k) plan. And the good news is that you can easily roll over your 401(k) into a gold IRA.

Best of all, this is a non-taxable event and there are no penalties.

6. Consider A Health Savings Account (HSA)

If you’re a small business owner, you should consider opening a health savings account.

Health savings accounts can help you save on taxes, and you can use them to pay for medical expenses. 

Health savings accounts are funded with pre-tax dollars and can help you save on taxes because they allow you to pay for qualifying medical expenses.

You can open a health savings account with your employer or open one yourself. 

Besides, you can choose from several different types of health savings accounts, including high deductible health plans.

The Bottom Line

If you own a small business, you should plan for smart tax planning so that you can improve your finances.

Smart tax planning can help you maximize the value of your small business, as well as improve your cash flow. 

Tax planning with professionals can help, especially if you have highly appreciated assets from your small business.

Financial planners and tax advisors can help you build a smart tax strategy that can help you make the most of your hard-earned money.