Making a lot of money is great, but keeping it is even better!
Here are 5 strategies my small business clients use to take advantage of the US tax code:
Here are 5 strategies my small business clients use to take advantage of the US tax code:
I commonly see folks walk in to my office with no tax mitigation plan at all.
As a tax strategist, I know we can completely change the way they think about taxes, and save them a bunch of dough.
That's exactly what we did with Heather.
As a tax strategist, I know we can completely change the way they think about taxes, and save them a bunch of dough.
That's exactly what we did with Heather.
Heather is a self-employed Personal Trainer that runs a successful solo practice.
She has grossed around 200k annually since we started working together nearly 10 years ago.
Here's exactly what we did to save her 30k a year for the last decade..
She has grossed around 200k annually since we started working together nearly 10 years ago.
Here's exactly what we did to save her 30k a year for the last decade..
1. Entity Structure - Heather had no entity in place. She was doing business under her own name.
We hired an attorney to set up a LLC for her practice.
There are many reasons to do business in an LLC rather than your personal name, but we are mostly concerned about...
We hired an attorney to set up a LLC for her practice.
There are many reasons to do business in an LLC rather than your personal name, but we are mostly concerned about...
2. Salary Optimization - There are a couple of reasons to optimize salary.
Below 400k of net income, you want to pay yourself the correct salary to optimize for Self Employment taxes, >400k you optimize for the QBI deduction.
For Heather we were concerned about the former.
Below 400k of net income, you want to pay yourself the correct salary to optimize for Self Employment taxes, >400k you optimize for the QBI deduction.
For Heather we were concerned about the former.
Heather had paid 60k of total tax the year she arrived at my office. 20k of that at the time was for Self Employment taxes. Oof..
Self employment taxes are 15.3% of the first 160k
Self employment taxes are 15.3% of the first 160k
You can optimize your salary by paying yourself what someone would earn in your line of work, and save the difference.
For heather that meant a salary of 80k (what she had made at her prior role), saving her 1/2 of Self Employment Taxes, and additional medicare taxes.
For heather that meant a salary of 80k (what she had made at her prior role), saving her 1/2 of Self Employment Taxes, and additional medicare taxes.
3. Expense Organization - Once we had optimized salary for Heather, we got down to the next issue. Heather had not really been tracking expenses in her business.
For her 200k in business revenue, she had less than $10,000 of business expenses.
For her 200k in business revenue, she had less than $10,000 of business expenses.
She didn't take any auto deduction, and even forgot to deduct her rent!
We dug through her bank accounts and finally got her organized.
We opened up one bank account and one credit card where all of her business income and expenses would take place.
We dug through her bank accounts and finally got her organized.
We opened up one bank account and one credit card where all of her business income and expenses would take place.
We connected those two cards to her bookkeeping system, and developed a monthly financial process.
Even though she runs a small business with one employee, she found value in understanding how much money she cleared each month, what would go to taxes, and what was free to spend.
Even though she runs a small business with one employee, she found value in understanding how much money she cleared each month, what would go to taxes, and what was free to spend.
4. Retirement - Heather had always been frustrated that she hadn't saved for retirement like she wanted to. That was one of her main goals - even more so than paying less tax.
We were able to take her tax savings from steps 1-3, and max out her Solo 401k.
We were able to take her tax savings from steps 1-3, and max out her Solo 401k.
5. Real estate - During the pandemic, Heather decided she wanted to get out of town and travel.
She found a piece of property that she wanted to use for client and peer retreats.
Heather was able to purchase the property and pay almost no tax in 2021, and won't pay much for '22
She found a piece of property that she wanted to use for client and peer retreats.
Heather was able to purchase the property and pay almost no tax in 2021, and won't pay much for '22
Summary -
Heather was able to go from paying 60k+ in annual taxes to <30k going forward, every year.
That savings has allowed her to fund her retirement (further driving tax savings), and save to grow her business.
Heather was able to go from paying 60k+ in annual taxes to <30k going forward, every year.
That savings has allowed her to fund her retirement (further driving tax savings), and save to grow her business.
She followed 5 simple steps
1. Selected the best entity type for her
2. Optimized her wages
3. Organized her finances with @betterbkg
4. Saved for retirement
5. Bought Real Estate (and saved with @recostseg)
1. Selected the best entity type for her
2. Optimized her wages
3. Organized her finances with @betterbkg
4. Saved for retirement
5. Bought Real Estate (and saved with @recostseg)
Better Bookkeeping is an all in one financial and tax solution for founders and solopreneuers.
We help business owners pay less tax and stay organized, so they can focus on growing their business.
Follow @betterbkg to learn more and sign up!
We help business owners pay less tax and stay organized, so they can focus on growing their business.
Follow @betterbkg to learn more and sign up!
If you found this helpful scroll back up to the top and like the first post, and share the thread.
Also follow me @baldridgecpa and look at my pinned tweet for more threads like this.
Also follow me @baldridgecpa and look at my pinned tweet for more threads like this.
Loading suggestions...