How to Reduce Taxes for S Corp Owners. Best 5 Tax Reduction Strategies

Introduction Why are S-Corp owners often overwhelmed by tax obligations? How can strategic tax planning substantially reduce the tax burden of an S-Corp? This article presents five strategies for minimizing taxation that could assist S-Corp owners in saving money by paying less in taxes, starting from family board meetings to optimizing retirement contributions.

1. Establish a Family Board of Directors One of the most effective strategies, but often overlooked, is creating a board of advisors that includes family members. Through this strategy, you are able to involve your family in the business while also reducing income in the lower tax brackets. Moreover, strategically scheduling board meetings when the family vacations coincide with them makes it possible to legally deduct travel expenses so long as business is the primary reason for going on that trip.

2. Pay Your Kids Employing your kids in the business is another great tactic. By paying for legitimate work done by children you will be taking advantage of their lower tax bracket and reduce the business taxable income. Another great benefit is unlocking your child’s ROTH IRA. As soon as your child has earned income they become eligible to contribute towards a Roth IRA and therefore get a head start on saving for their retirement on a tax-free basis. If you contribute $15 a week starting at age ten your ROTH IRA with an 8% annual return will yield approximately $908,000 at age 67.

3. Maximize Contributions to a Solo 401(k) For S corporation owners, solo 401(k) plans are very beneficial since they allow both employer and employee contributions; thereby, significantly increasing the business owner’s annual contribution limits. Employer contributions reduce the business's taxable income thus while employee contributions reduce W-2 income. This strategy will significantly reduce taxes.

4. Home Office Deductions: The Home Office Deduction is a valuable strategy for S Corp owners who operate their businesses from home. To qualify, you must use a portion of your home exclusively and regularly for business purposes. The deduction allows you to write off a portion of your home expenses, such as mortgage interest, rent, utilities, and insurance, based on the percentage of your home used for business.

One of the key advantages of claiming the Home Office Deduction is that it can unlock the ability to deduct auto expenses. By establishing your home as your principal place of business, any trips you make from your home office to other work locations can be considered business travel. This means that you can deduct mileage, fuel, maintenance, and other vehicle-related expenses incurred during these trips. This strategy not only reduces your taxable income, but also allows you to capture deductions that might otherwise be overlooked.

5. Deduct Medical Expenses with an HSA or HRA Health Savings Accounts (HSAs) and Health Reimbursement Arrangements (HRAs) are great ways of reducing taxable income. Contributions to an HSA are tax-deductible, and withdrawals for qualified medical expenses are tax-free. With the correct corporate structure in place, HRAs can allow S Corp to deduct 100% of their medical expenses, offering another tax-free benefit.

Conclusion Torino Accounting Group works with small business owners use 80+ tax strategies to implement effective tax reduction strategies. By incorporating these strategies into your financial planning, you can significantly lower your tax burden and secure a stronger financial future. Schedule a discovery call today to find out how we can help you implement these strategies and help you keep more of your money.