Basic Tax Planning Ideas for High & Middle-Income Business Owners
Our firm, and the investment advisors we work beside, can assist small business owners in setting up these retirement plans. We can help you plan for retirement and plan for when and how you will sell the business (or transfer it to others).
It is also surprising how many small business owners do not realize that they have estate tax issues. You have been working hard in your business, been reasonably successful and you don’t consider that your business has substantial value. The current administration’s proposed budget, which is currently sailing through Congress, proposes to maintain the estate tax at 2009 levels. In order to take advantage of the estate tax minimization strategies available to you and your family, you’ll want to discuss your situation with an estate tax attorney.
Many small businesses are family businesses and there are significant tax breaks to be had by employing family members, especially minor children. Certain payroll taxes do not have to be paid on wages paid to minor children of the owners. Assuming the net pay paid to the minor children is destined for savings, the child can contribute to a Roth IRA to the extent of earned income (not to exceed $5,000 in 2009). Of course, the owner-employer has to make sure that the children are paid reasonable compensation for their services. In other words, you'd be pushing it if you paid a five-year-old $20,000 a year to empty the trash.
Small business health care and employee benefit plans, such as a Section 125 plan, present additional opportunities for a small business owner to minimize taxes on a pretax basis and avoid income limitations for high income individual taxpayers.
Unless it disappears in the meantime, another opportunity comes in 2010 when the adjusted gross income limitation disappears for conversions of traditional IRAs to Roth IRAs. Currently, there is $100,000 modified adjusted gross income limitation on these conversions.