This list is meant to be a guide for potential ways to help our clients reduce their tax liabilities. Not all items are applicable for every client and each has its own restrictions and limitations. None should be undertaken without individual consultation with regard to your specific tax situation. Please call our offices for an appointment with Jim Gibbs to learn more.

S Corporation Choice of Entity

The projected S Corporation net earnings are sheltered from self-employment tax which would be paid if self-employed. The corporate structure provides the owner with limited liability protection so personal assets are shielded from claims of business creditors. The business income, tax deductions, credits, and losses are passed through to the owner rather than taxed at the corporate level.

Augusta Rule: Tax-Free Rental Income

The Augusta rule allows a taxpayer to receive tax-free rental income received on qualifying property if the property was rented for less than 15 days.

Hiring Your Kids

Parents who employ their child in a closely held business can lower their business income, reduce their income taxes, and allow their children to earn their own income. Revenue rulings and case law have established how businesses can deduct wage payments made to the child as long as they are a bona fide employee, their compensation is reasonable, and they actually render services to the business.

Business Use of Home

A taxpayer may deduct the business use of their residence. In order to qualify, the use must be incurred because of the taxpayer’s business and the residence must be used exclusively and regularly as the taxpayer’s place of business.

Combine Business and Personal Travel

You may be able to combine business and personal travel and still deduct certain trip expenses. To qualify, a domestic trip must be primarily for business purposes. You should assess all the time and activities on your trip and whether the majority were related to business. You can’t deduct expenses for any trips that were primarily personal. If you travel outside the U.S., you’ll also have to allocate your expenses between business and personal costs in proportion to the number of days you spent on non-business activities.

Employer (ER) Accountable Reimbursement Plan

An accountable reimbursement plan lets employees get paid back for certain job-related expenses and lowers the business and employee’s taxes. These plans are advantageous because employers can deduct many expenses that employees cannot such as uniforms, mobile phone costs, and per diems. Payments made under an accountable reimbursement plan are excluded from the employee’s gross income and aren’t reported on Form W-2. By reimbursing expenses and lowering wages, the employer and employee can both save payroll taxes. Using an accountable reimbursement plan also lowers the employer’s taxable income by the deductible amount of expenses incurred.

Health Care Flexible Spending Account (FSA)

Health care flexible spending accounts are tax-advantaged accounts that let you set aside money on a pre-tax basis to pay for qualified medical expenses. The money set aside can be used to pay deductibles, copayments, coinsurance, and other medical expenses.

Health Savings Account (HSA)

Health savings accounts are tax-advantaged accounts that let you set aside money on a pre-tax basis to pay for qualified medical expenses. The money set aside can be used to pay deductibles, copayments, coinsurance, and other medical expenses.

Hiring Your Spouse

Both the taxpayer and spouse must have earned income to take the child- and dependent-care credit. Taxpayers with a business can hire their spouse as an employee to qualify for the child- and dependent-care credit, which covers dependent care expenses. The spouse’s work must be directly related to the business activity. (Personal activities like mowing the lawn or taking out the garbage do not count as work.)

Medical Expense Reimbursement Plan (MERP) for C Corporations

Medical expense reimbursement plan (MERP) is any plan or arrangement where an organization reimburses employees for out-of-pocket medical expenses incurred by employees or their dependents. If administered correctly, all reimbursements paid to the employee are 100% tax-free.

Pre-Tax Health Insurance

Health insurance premiums may be deductible for people with self-employment income who aren’t eligible to receive insurance through an employer or their spouse’s employer. The paid premiums can be taken as an adjustment to income and thus lower taxable income even when taking the standard deduction.

Bonus Depreciation

A taxpayer can elect to expense all or part of the cost of certain qualifying property by deducting it in the year it is placed in service.

Section 179 Expense

A taxpayer can elect to expense all or part of the cost of certain qualifying property by deducting it in the year it is placed in service.

401(k) Employer-Matching (ER) Contributions

Employers can make matching and non-matching contributions to a sponsored 401(k) plan on behalf of their employee, even if the worker has already maxed out their contributions. Employer-matching contributions are like free money and are not subject to Social Security, Medicare, or income taxes. Make sure your client is contributing enough to get the most out of their employer’s matching program. This amount isn’t reported on the W-2 but can usually be found on paystubs.

403(b) Employer-Matching (ER) Contributions

Employers can make matching and non-matching contributions to a sponsored 403(b) plan on behalf of their employee, even if the worker has already maxed out their contributions. Employer-matching contributions are like free money and are not subject to Social Security, Medicare, or income taxes. Make sure your client is contributing enough to get the most out of their employer’s matching program. This amount isn’t reported on the W-2 but can usually be found on paystubs. Employer pre-tax contributions lower your client’s taxable income and the tax savings are calculated using the applicable FICA and federal and state income tax rates unless changed.

Simplified Employee Pension Individual Retirement Plan (SEP-IRA)

A simplified employee pension (SEP) plan allows self-employed individuals, business owners, employers, and those earning freelance income to contribute toward their employees’ retirement as well as their own retirement. Contributions are made into an individual retirement account (IRA) that is set up for each plan participant.

Solo 401(k) Contributions

If you own and run your business alone, or if only you and your spouse work in the business, you can save for retirement with a Solo 401(k). A Solo 401(k) is like a regular 401(k) plan that many employers offer. If your business grows and you eventually hire employees, the Solo 401(k) simply converts to a regular employer 401(k) plan.