Top 10 Simple and Legal Tax Shelters for Businesses
Legitimate tax shelters do exactly what the name indicates…give you and your money “shelter” from taxes. Tax shelters allow you to reduce how much you pay the IRS in taxes by reducing your taxable income. As you might expect, the IRS keeps very close tabs on tax shelters to be sure that taxpayers are not evading their taxes, which is illegal. If you decide to put your money in a tax shelter, it is critical for you do it legally and make sure you are on the right side of the tax law!
There are many legal tax shelters that businesses can use to help protect their funds. We’ve compiled a list of the top 10 strategies that you can put into place now, so that you pay less next spring.
1. Immediately deduct the cost of capital asset purchases (up to $500,000) rather than deducting these costs over time.
2. Real Estate: Owning property is a great tax shelter for individuals or business owners. You can deduct the cost (or a portion of the cost) of points, mortgage insurance, lines of credit, and property tax. You must own at least 10% of the property to deduct it.
3. Home office deduction: If you operate your business out of your home, there are many ways to maximize deductions. You can deduct a portionof your mortgage, utility bills, office supplies, computers and even a portion of home repairs.
4. Retirement Savings: Again, like real estate, retirement savings are one of the most popular and best tax shelters for both individuals and businesses. SEPs, Simple IRAs, and Solo 401(k)s are just some of the retirement plans for business owners.
5. Family-business: If you hire a member of your immediate family to work with you (children/spouse), this increases your income and helps with additional deductions.
6. If you are self-employed, you can legally deduct up to 100% of your income (up to $205,000) for contributions to a private pension plan and very often up to 100% of health care costs.
7. Limited partnerships: The IRS actually encourages investment in certain types of companies (like mining or oil drilling) and allow exploration costs by a company to be distributed to shareholders of the company as tax deductions. This gives investors instant tax savings.
8. Health Savings Accounts: Another legal tax shelter for business owners and employees alike are health savings accounts. You can contribute to your health savings account from pre-tax income, saving you at tax time!
9. Gift to others: There are many rules around this, but there are situations where you can give money to family in a lower income bracket – particularly your children.
10. Get advice before you file: If you are considering using a tax shelter, it is best to get the help of a reputable tax firmto be sure that you and your business are protected and proceeding legally. Success Tax Relief is a Houston-based tax firm that serves clients all over the country. We are experts in the current tax law and can advise you on tax shelters, deductions and how best to minimize the amount you pay the IRS each year. Contact us today for a more individualized approach!