Has your business survived the economic scars of coronavirus? If so, consider yourself lucky. If your business made it through some of our country’s toughest of days, your mantra should be “I am a money magnet.” Kudos to you! Remain consistent and plan well for your future financial health.
Many small businesses received some financial aid from SBA and other institutes during the past few months and it provided some much-needed relief. Now it’s time to plan for the future for your business, financial plans in particular.
One important consideration that small business should think about are alternative tax relief options. You may think I am referring to tax deductibles as charitable donations, home office expense apportioning, and travel expense deductions. However, there are other ways your small business can save and increase your long-term financial success chances.
Maximize your Retirement Contributions with a SEP or Solo (K)
Both SEP and Solo (k) retirement plans are well suited for those who are self-employed and small business owners. You can maximize your retirement contributions by choosing either one of these plans.
A Solo (k) retirement plan allows you to contribute up to 100% of your salary to your retirement savings plan. The maximum contribution limit for the Solo (K) is $19,500 and this plan comes with the additional benefit of employer contribution with up to a 25% limit. As an employer, you can contribute up to $57,000 to your Solo (K) plan. Would that be perfect fit for you?
A SEP IRA may be better suited for those who are self-employed versus small business owners since you must contribute the same percentage for all of your employees. However, you can still use the SEP retirement savings for up to 25% of your business income with a maximum contribution limit of $57,000.
Both retirement savings plans offer tax advantage and long-term saving instruments to you as a small business owner. You might also consider traditional IRA and Roth retirement plans that are well suited for an individual’s saving plans.
Utilize the Health Savings Accounts
If there is one retirement contribution plan that comes closest to the traditional IRA, it is the HSA contribution plan. It offers you a similar tax-deductible benefit with regular contributions but does not limit the contribution like an IRA. Your savings and interest with HSA at retirement will also reward you with tax benefits. You should be mindful of HSA’s penalty on non-medical utilization of the funds.
Plan Business Tax Deductions
Do not forget to track any expense that you incur on your business that is tax-deductible. For small business owners, many expenses overlap with personal expenses. Be sure to revisit these expenses and apportion them accordingly against the business. For example, reevaluate your internet subscriptions, mileage, business meals, software, and childcare contributions just to name a few.
Also, ask your tax professional to revisit your previous year’s tax write-offs. You can still apply for a tax write-off if you come up with any qualified deduction for the previous three years.
Small business owners must sometimes adopt the inevitable expense reduction strategy, all business have to. It is high time to re-examine our spending now more than ever in this current climate. Determining our necessities vs. wants is a great starting point to saving money going out of the business. For example, if your business has shifted to online or virtual and you are still paying rent for an office space you may want to revisit that lease agreement for potential savings opportunity given the shift in your business or opt out of renewing the lease.
It may seem like a scary task at this stage to think of savings and retirement contributions as a small business owner. However, life emergencies and economic recessions make us rethink our saving and contingency planning. While planning for your future financial business strategy, keep in mind the long-term benefits of savings and retirement contributions.