Attorney Thomas B. Burton discusses some ways small business owners can reduce their taxes after the 1st of the year, but before they file their tax return in April.
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Transcript of Video: How Small Business Owners Can Reduce Their Taxes After January 1 But Before Filing in April
Today's topic is specifically for small
business owners
specifically, self-employed small
business owners and you'll see I created
a video about how can you reduce your
taxes after the tax year has ended but
before you file so for example the tax
year ends on December 31 but most
Americans aren't required to file their
taxes until around April 15th of the
following year and that April 15th date
as you know varies depending on whether
it falls on a weekend it can be slightly
later but what many people didn't know
and what I didn't know until I started
studying taxes in detail is that there
is a way to reduce your taxable income
after the tax year ends, I had a video I
created about how you can reduce your
taxes before the end of the tax year but
what about that four months from January
until you file in April and the best way
to do that is by contributing to an IRA
which can drive down your income reduce
your taxable income for that year now
for wage earners watch my previous video
because you're subject to the limit of
six thousand dollars for age 50 and
under for 2019 or $7,000 for age 50 and
older but for small business owners
especially if you're self-employed small
business owner like myself there are two
there are a couple other plans you could
look at one of which is the SEP IRA and
that allows you to contribute up to 25
percent of up to 280,000 dollars in
compensation or 25 percent of net
self-employment earnings and that's
defined as self-employment income minus your
SEP IRA contributions and one half of
the self-employment tax so a SEP IRA can
be a great way to contribute more than
what you can contribute as a wage earner
because remember it's generally that
$6,000 for
age 50 and under but the maximum you can put in
a SEP IRA is up to fifty-six thousand
dollars per taxable year and you think
about the ability of that to really
change the tax figures for you in any
given year so if you had a really good
year and you want to drive down your
income you could contribute a lot more
money to your SEP IRA another plan to look at
would be a simple IRA and you can use
that the SEP is only if you're
self-employed but the Simple you can use
if you're self-employed or run your own
business and that the Simple plan has
some different contribution levels but
if you have employees you might want to
talk to your tax and financial advisor
about that versus the SEP which is just
for a strictly solo self-employed person
and the annual contribution limit for
Simple I raise thirteen thousand or
sixteen thousand if you're over age 50
and employees can contribute two percent
of compensation or can match
contributions up to a maximum of three
percent of compensation there's also
401k plans you can put in place for
either a self-employed solo individual
or a business so I suggest if your small
business is doing better and you need to
look at ways to reduce your taxable tax
burden but also save for retirement in
your later years you should look at some
of these plans and be aware even if you
don't do one of these special plans for
a business owner you can contribute to
that traditional IRA at any time before
you file your taxes between January 1
and April 15 for the previous tax year
and if you don't know how to do this
speak with your financial advisor and your
CPA and they can help show you how that
changes the numbers on your tax return
so that's today's tax tip thank you for
watching!
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Transcript and captions provided for ease of access for the hearing impaired.
For questions about this topic, or to suggest a topic for a future blog post, please contact my office.
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