Basic Tax Planning Ideas for High & Middle-Income Business Owners
Unfortunately, the most common tax breaks have been phased out for the wealthy and, for those living in high cost states such as California and New York, middle income taxpayers. Congress and the administration have targeted high and middle income taxpayers to pay more taxes. They will accomplish this by raising the income tax rates, subjecting more deductions to phase out limitations and changing the estate tax rules. I also expect more tax audits and similar enforcement programs.
So far, little, if any, help has been made available to small business owners. I don’t see any bailouts coming and we've known for a long time that you can't rely solely on social security. Unless you are semi-retired and have a pension, you, like most small business owners, have little in the way of retirement funds.
Many small business owners tell me that their business is their “retirement” meaning that they plan to sell the business upon retirement. Unfortunately, they don’t really have an exit strategy or succession plan. I tell them that they need to start saving for retirement as soon as possible and they can use the business to do it.
If you own a small business, you can set up a retirement plan such as a traditional 401(k) or Roth 401(k) plan for you and your employees. You can even have a solo 401(k) plan designed for sole proprietorships. These qualified retirement plans provide substantial tax advantages to both employer and employee. The employer can customize the plan’s features, such as an option to match employees’ contributions as provided by law, depending upon the employer’s goals and objectives.