How smart women entrepreneurs can use tax planning to save thousands on their taxes … [+]
By: Jenny Johnson and Shauna A. Wekherlien
Planning for the future is impossible if you don’t know where you are today. But we all know how important a good financial plan is to your future success. A good place to start is with tax planning (considering that taxes are one of the biggest expenses in most business / personal finance!).
Tax planning is the analysis and design of your financial situation in order to maximize your tax deductions and minimize tax liabilities. Tax planning is a legal way to keep your business running efficiently and save you thousands on filing your taxes.
If you are confused about the future, don’t be afraid because Shauna A. Wekherlien, CPA, MTax, CTC, CTS (AKA the Tax Goddess) is here to share five strategies for reducing your tax burden. And when you maximize your money, you can use those overpaid tax dollars on whatever goals / areas of your life you want to maximize.
1) Build your finance team.
While you might be tempted to jump over to Google and see everything you need to know, Shauna’s first piece of advice is to surround yourself with professionals who understand the legal loopholes and specialize in saving people money. She says:
You can’t rely on the internet to try and save more than $ 37,000 in tax breaks. You will need professional help.
You wouldn’t let your child zoom in with the nanny, so why trust Google to give you tax advice on your business?
Your finance team should (at least) consist of:
- An accountant.
- A certified public accountant or auditor.
- A strategist for tax planning.
While you may be wondering if you really need all three, I can promise you that if your goal is to get rich and stay rich, then you will! Every successful and wealthy person considers these three types of financial professional to be essential. And if you can find a service provider with more than one ID (e.g. some certified tax strategists are also accountants), consider that a bonus.
Building your finance team with the most skilled people can save you time, energy, and money. Then you will know which loopholes are worth your attention and which are not.[Related: Five Ways to Do More Good (And Save On Taxes, Too)]
2) Know the most common deductions and credits.
There are some obvious ways to save on taxes and then there are the more obscure ways that fit into niche situations. Knowing the most common deductions and credits will give you a head start when working with a tax planning strategist.
Deductions are deductions for what you owe the IRS based on business expenses or filing status. Credits are dollar for dollar discounts on your tax bill.
Here are some of the most common tax deductions and credits that you should understand:
- Interest deduction for student loans.
- American opportunity loan.
- Credit for lifelong learning.
- Child tax credit.
- Earned Income Credits.
- Capital loss deduction.
- Donation deduction for charity.
- Mortgage Interest Deduction.
- Saver’s credit.
- Deduction of self-employment costs.
- Home office expenses.
- Deductible car expenses.
3) Use home office prints.
While many small business owners work from home, too few actually use the home office deduction. Home office deductions are one of the easiest, fastest, and most misunderstood ways to maximize your savings from 2020 (thank you COVID for letting us all work from home!).
Shauna recommends you:
Save your receipts for purchases you’ve made for your business when your home is your office because even small items like pens, paper, ink cartridges, lawn maintenance, pest control, even your repairs to your kitchen can all get written off, which adds up to tons of savings.
Starting your own business and working from home doesn’t have to create an imbalance in your life. Save money and stress by exploiting legal loopholes wherever you can.[Related: New Year’s Resolutions: Five Tips to Help You Achieve Your Financial Goals]
4) Maximize retirement savings.
If you work for someone else, make sure to maximize your 401K each year to stash money so it’ll be safe from the IRS and waiting for you when you retire. If you’re working for yourself and don’t already have a corporate 401K, then you need to get creative. Options such as the savings loan, the Individual Retirement Account (IRA) and the Infinite Banking concept help here.
These concepts enable a tax strategist to help you save much more than the standard $ 6,000 per year contribution. Some of these concepts can save you more than $ 250,000 a year – better still, in some cases, completely tax-free for life!
This is a big topic for Shauna:
I recommend all my clients who run their own business to invest in some type of retirement plan (IRAs, a Solo 401 (k), tax-free retirement insurance – whatever it is! There are many benefits to an entrepreneurial lifestyle to lead, but one of the biggest downsides is that when you retire, nobody will care – you have to prioritize your own retirement and make it the way you want to see it.
Investing in your future not only gives you a cushion, but retirement accounts are the key to building tax-free income.
5) Borrow money from your company.
Shauna’s last advice is to save money by borrowing from your business. Many entrepreneurs do not realize that they have the right to borrow money from their business with no or low interest rates. This means that you can save anywhere from 3 to 24% on average over other credit methods such as credit cards or bank loans.
The loan must behave like a real loan, with payments and a document agreement. But as long as you properly maintain the loan, the IRS won’t contest it.
For example, you could borrow from your company to pay off debts. It’s also a great way to invest in assets outside of your business, such as: B. Real estate, the purchase of a vehicle or the financing of a renovation project. Borrowing is actually one of the best ways to save money and build wealth at the same time.
At the end of the day, a strong financial plan and team will ensure your money gets where you want it. With Shauna’s advice, you’ll save more and pay less.[Related: What Does Your Tax Style Say About You?]
Jenny Johnson works for Brava Digital Marketing.
Shauna A. Wekherlien, CPA, MTax, CTC, CTS, the “tax goddess”, is an author, speaker, investor and sought-after tax strategist, whose reputation is based on over 20 years of experience and the implementation of innovative tax solutions for individuals and companies. She has been featured on many news and radio networks (CBS, NBC, FOX, ABC, Sonoran Living, The List, KFNX, KFYI, etc.) as well as in many written publications (CNNMoney, The Arizona Republic, Phoenix Women, AZBiz, etc.). She has won multiple awards for ingenuity, leadership, and strength as a female leader in Arizona. Find out more about their program here.