What are the unique opportunities available to the business owner to reduce taxes and maximize savings?
Small business owners have a few unique opportunities available to them when it comes to reducing taxes and maximizing savings. The strategies that may work best for you will depend upon how your business is structured (e.g. sole proprietorship, S Corporation, C Corporation), how many employees you have, and other factors.
One way to reduce taxes is to take advantage of tax deductions for your business expenses. Another is to ensure you’re taking advantage of opportunities to set aside funds for retirement in a tax advantaged fashion.
If you’re a solo practitioner or have a limited number of employees, a SEP IRA or Solo 401k are popular options for tax-deferred savings. For employers with larger businesses and more employees, a 401k may be a better option.
Here’s a helpful guide to the different types of retirement savings plans available to business owners.
If your business is particularly profitable and you’re looking for options to save beyond the contribution limits of an IRA or 401k, there are a number of strategies to employee profit sharing plans or pension plans.
If your business is particularly profitable and you’re looking for options to save beyond the contribution limits of an IRA or 401k, there are a number of strategies to employee profit sharing plans or pension plans.
The universe of options available to small business owners can be overwhelming, so it’s best to work with a financial advisor that can help you evaluate the options and select the right strategy for you.
What are the unique financial planning considerations that I should consider as a small business owner?
As a small business owner, you have unique financial planning considerations that you should take into account. For example, you may need to save more money in case of a downturn in business, or you may want to invest in assets that can help grow your company.
When it comes to saving money, there are a few things you can do to make sure you're prepared for a rainy day. First, you should have an emergency fund that you can tap into if business declines. This fund should cover at least six months of living expenses.
While it’s easy to pour every spare dollar back into the business, you should save for retirement. Even if you're not yet ready to retire, it's important to start putting money away now. The sooner you start, the more time your money will have to grow.
Consider investing in assets that can help you grow your business. These might include physical assets like real estate or equipment, intellectual assets like training and intellectual property, and human assets like additional staff. By investing in these things, you'll be able to generate income and build equity over time.
Equally important to investing in assets is managing debt in your business and personal life. “Good debt” is used to buy equipment or assets that will help your business grow. “Bad debt” is commonly considered to be debt on assets that are depreciating and not creating value for your business.
Lastly, one of the most important financial planning considerations for a small business owner is risk management. Particularly, you should evaluate if your personal financial affairs are appropriately shielded from your business. Depending upon how your business is structured, a lawsuit or bad debt affecting your business can leave you personally liable for the damages. Having a team of competent advisors that includes a financial advisor, attorney, and accountant can ensure you’re properly protecting your personal assets from the legal and financial recourse that may befall your business.
