Yes you read that right – in the tax world, small business owners are blessed more than their employed counterparts.
I’ve had to remind many people about this today because it was annual bonus day for my GM friends. They received 10 – 15% of their salary as a bonus in today’s paycheck. That’s a good thing, right? Sure, but many were complaining about how much tax was withheld.
These GM folks apparently don’t realize the large bite taxes take from their disposable income. Small business owners are very aware how much Social Security, Medicare and income tax take from the business since its paid quarterly.
There’s not much I could do at this point to comfort these GM folks. An employee has few choices to reduce their tax bite. Choosing to defer income to retirement plans or health savings accounts are the most popular choices.
The small business owner can choose tax-deferred retirement planning, health benefits, other fringe benefits, vehicles, training, travel, business meals and entertainment and many other strategies. Also, the owner can manage cash flow around the quarterly tax payments.
Today’s lesson – if you have thought augmenting your job with some investing or a side business, get started now. Tax benefits are just another reason to jump in. But, as part of your due diligence, spend time with an enrolled agent or CPA to be sure your understand how to use tax law to your benefit.
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