How Do I Save Tax as a Small Business Owner in Kentucky?

As a business owner or individual contractor, you must manage sales, marketing, business operations, finances, and your employees—all by yourself, including taxes. Establishing a business is challenging; you probably have to work day and night to profit. Tax deductions are where those hard-earned money and profits are deducted from your pocket, which no one can escape. It’s a process where you pay the government. That’s where it becomes tricky: with the stated federal laws of taxation, we are required to perform tax deductions; however, the laws of the General Assembly allow business owners or individuals to reduce taxable deductions through smart business decisions.

Managing finances, doing accounting, and filing for taxes is indeed a tiring task for an average individual, but failing to follow necessary federal income tax regulations can certainly create problems for your business. However, seasoned, knowledgeable, and experienced accountants not only enjoy crunching financial numbers but will also help you manage your taxable income while saving more of your money. If you need help with taxes, connect with market professionals like CPA in Louisville KY.

Hire Your Family Members:

If you have a small business or your business has a sole proprietorship model, you can leverage the benefit of hiring your spouse, a relative, or any other family member. This will allow you to reduce your overall taxable income as you pay them legitimate salaries for their designated work, which can be counted as business expenses. Ensure they are skilled and take their work seriously. You will also need to handle the documentation, as tax authorities might scrutinize related parties; therefore, transparency is key.

When you add family members to the payroll, they are subject to federal income tax and FICA (Federal Insurance Contributions Act) taxes for Medicare and Social Security. This applies only if they are legitimate employees and not business partners or founders of your company. If you hire a child who is under 18, neither they nor you, as a business owner, are liable for FICA taxation. Generally, when taxes are deducted from employee salaries, half goes to the employee’s share and the other half to the business owner. Corporate settings may have different rules.

Your child or you, on their behalf, can open an Individual Retirement Account (IRA), allowing them to save a portion of their salary in the IRA each month. If they start saving at such a young age, it will be more beneficial, as they will be able to save a substantial amount of funds decades later. This Roth IRA system will ultimately allow them to take withdrawals tax-free, benefiting both parties.

Saving Money for a Healthcare Plan:

Regardless of your business model, this option alone can help you save a significant amount on your taxable income, depending on the healthcare plan and premiums. It’s evident that medical treatments are on the rise, and in a few years, they may become quite expensive. Having medical funds set aside can be a lifesaver. You should open a Health Savings Plan and opt for a high-deductible medical plan that includes your health insurance, treatment plan, and everything in between.

The advantage of this healthcare plan is that if you are a business owner, you can deduct the premium cost for yourself, your spouse, family members, or even your child if they are under 27. This makes it a legitimate expense, which will reduce your overall taxation.

The deductible amount is tax-free as per Federal taxation rules and IRS guidelines, under which the amount is considered qualified medical expenses. Furthermore, if you or your family members have this healthcare plan, the amount saved in the account grows tax-free with accrued interest and rolls over from year to year.