Millions of Americans were in a holding pattern in 2024, waiting to make major decisions on business expansion, buying equipment, hiring, or even purchasing investment property. They were concerned about interest rates and inflation, of course, but they were also hampered by the uncertainty of the presidential election.
With a new Trump administration, we now have an answer: Republicans are expected to extend many of the provisions in the Tax Cuts and Jobs Act (TCJA), which were set to expire at the end of 2025. This includes keeping personal income tax rates the same, as well as maintaining the current standard deduction figures, bonus depreciation rules, and qualified business income deduction.
Had those not been extended, CPAs like me would have anticipated higher tax bills for our clients — and therefore advised on a range of mediocre, marginally helpful tactics. But now, I’m telling clients to operate with more certainty. We know what the economic impact was before under the Tax Cuts and Jobs Act, including the bottom-line impact on business owners’ tax returns. It’s now time to invest and to review our plans for expansion.
Other tax relief could also be coming from Washington in 2025. On the campaign trail, President Trump talked about reducing or eliminating taxes on Social Security, tips, and even overtime. It remains to be seen whether those bills pass, and, if they do, how businesses should adjust their spending strategies.
Related: 7 Advanced Tax Strategies for Self-Employed Professionals
In the meantime, there’s still plenty else that business owners can do to reduce their tax burden in 2025. Here are four strategies to talk about with your tax advisor this year.
Utilizing an S corporation to save on FICA
Some accountants might say this is a “high-risk” strategy. I think the high risk is not taking a reasonable salary out of your S corporation, and there is plenty of room for planning. If you expect to make more than $60,000 of net income in your business this year, you can split your income between pass-through (getting the 199A deduction) and W-2 (limiting your FICA responsibility) and create significant tax savings.
If you aren’t sure what your net income will be this year, consider an LLC so you can convert to an S corporation when the time is right. Make sure you have a constructive conversation about how much salary to take, and your pass-through should be greater than your payroll.
Integrating your family into your business
Almost every small business owner utilizes their family members in the business. However, they often forget to compensate them most advantageously. Taxpayers should stop paying taxes first, and then giving their kids money or paying for their expenses after. Instead, they can start deducting valid compensation for their children’s services in the business and let the kids pay for their own expenses.
Children under age 18 should not be paid with a W-2 or a 1099, but compensated as “outside labor” through a sole proprietorship. When set up properly, this can be achieved through the use of a support company for a client’s S corporation.
Children age 18 or older will typically be compensated with a 1099 when helping the business from afar while at college or serving on the company’s Board of Directors or Advisers. However, if they are acting like a “rank and file employee,” they must be paid through a W-2 and comply with state and federal regulations.
The bottom line is that there are tremendous tax savings by making sure children pay their own taxes on their income at a much lower rate than that of the business owner or parents.
Related: From Overdue to Overcome — 4 Strategies to Help Entrepreneurs Address Back Tax Issues
Healthcare expenses and insurance
There are so many opportunities for a taxpayer to save on taxes when it comes to healthcare expenses and health insurance if they are proactive and engaged in the planning process.
The Health Savings Account (HSA) is as strong as ever and is a huge opportunity for even non-business owners. The HSA is deductible for taxpayers on the front page of their tax return, no matter their income — and it never phases out. The funds grow tax-free and aren’t a “use it or lose it” plan. A taxpayer can even invest the money in a self-directed way, including in real estate.
The Health Reimbursement Arrangement (HRA) is another fantastic strategy, but strictly for business owners. This benefits those with higher-than-average medical expenses. The HRA allows business owners without other employees to set up their own “benefit plan” for healthcare and reimburse themselves for all of their healthcare expenses — thereby getting a 100% write-off for all of their medical expenses.
Finally, it’s important for business owners to remember that health insurance is 100% deductible for a small-business owner, whether the business owner covers other employees or not. A non-business owner would have to try and itemize this expense, to no avail.
Business travel
In my opinion, travel is one of the most underutilized tax deductions by small-business owners today. Unlike meals and entertainment, which are predominately limited by 50%, travel expenses are 100% deductible. Travel expenses include airfare, baggage fees, hotel and lodging, rental cars and gas, and even valet, taxi, trains, tolls, etc.
I try to make all of my travel a business write-off by following a few simple rules. Consider the following five reasons to justify a valid travel expense:
1. Hold a company annual meeting. Every small business should maintain a board with their family members or close friends and deduct legitimate board meetings when traveling.
2. Visit a client or customer. Wherever a taxpayer is traveling, they should be considering a meeting with a client or customer and cultivating the relationship.
3. Visit a vendor. A taxpayer should consider every trip an opportunity to visit a vendor or supplier and negotiate new pricing, tour a facility, or talk about networking.
4. Attend a conference or workshop. Taxpayers should look at possible workshops in the local area where they are visiting. Travel to classes, whether tax, legal, business, marketing, or technical training, will be a write-off in their business.
5. Checking on rental property. I’ve said it time and time again: Rental property is one of the best investments for any taxpayer to build wealth. It’s also an incredible tax benefit and method to build tax-deferred or even tax-free wealth.
Related: 4 Effective Strategies to Reduce Your Income Taxes
Any of these legitimate business purposes above justify a valid business expense and deduction for a business owner.
In short, this will be a very interesting year for tax planning. Major legislation will be passed, and new opportunities may arise. It’s absolutely critical that a taxpayer meet with a legitimate tax advisor and take control of their tax planning this year. It doesn’t have to be complicated or intimidating. You just need to have the conversation and find a plan that works.
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