How to Reduce your Tax Bill, Legally
January started a new year and April 15th is swiftly approaching (correction- it is here!). With that comes the perfect opportunity to discuss taxes. Okay, don’t flee this blog just yet, I promise there is good information in this post! Many small business owners cringe at the thought of paying taxes and rightfully so. The higher your income, the higher your tax rate, and that can leave little incentive to earn more money, don’t you think?
Before you brew up creative ways to skirt around paying the IRS, consider this: you can shelter your hard earned dollars from taxes, legally. Have I caught your attention now?
Let’s say your 2015 taxable income is $100,000. This would put you in a 28% Federal tax bracket if filing individually. You would be paying $28,000 in taxes to Uncle Sam. Eek! That’s enough to hire an additional full time employee for a year!
So how can you reduce that tax bill, legally? You could shelter those hard-earned dollars by starting a company 401(k) plan. With a qualified retirement plan like a 401(k), you can defer up to $18,000 in pre-tax dollars into your account each year. With an annual salary of $100,000 per year, and a contribution of $18,000 in the 401(k), your taxable income would be reduced to $82,000, and the earnings on the money you put into the 401(k) plan are tax deferred until you take them out at retirement. But it gets better.
As the employer, your company can also take a deduction for any matching or profit sharing contributions made to the plan for your benefit and the benefit of your eligible employees. Although matching your employees isn’t required, it is a great benefit that will also earn you employee loyalty and encourage productivity and profitability.
The best part about a 401(k) plan is that they can be designed to be extremely flexible. If properly designed, they can be custom-tailored to fit the needs of any business. For more information on the 401(k) you can visit our blog. Please keep in mind every retirement plan is different. You should consult with a qualified tax professional as well as a credentialed and qualified retirement plan consultant before you adopt and establish a plan.