In 2024, tens of millions of Americans were left waiting to make necessary decisions about expanding their businesses, purchasing equipment, renting, and even purchasing investment properties. They were, in fact, concerned about rates of interest and inflation, but they were also concerned about the uncertainty of the presidential election.
Thanks to the latest Trump administration, we now have an answer: Republicans are expected to extend many provisions of the Tax Cuts and Jobs Act (TCJA) that were scheduled to run through the end of 2025. This includes keeping personal income tax rates the same, in addition to maintaining the current standard deduction amounts, bonus depreciation rules and qualified business income deduction.
If they weren’t prolonged, CPAs like me would expect higher taxes for our clients and due to this fact advise a range of mediocre, marginally helpful tactics. But now I tell clients to act with more confidence. We know the impact the Tax Cuts and Jobs Act has previously had on the economy, including the ultimate impact on business owners’ tax returns. It’s time to invest and review our expansion plans.
In 2025, Washington may introduce one other tax break. During the campaign, President Trump talked about reducing or eliminating taxes on Social Security, suggestions and even extra time. Time will tell whether these bills will pass, and if so, how firms should adjust their spending strategies.
In the meantime, there’s still plenty business owners can do to reduce their tax burden in 2025. Here are 4 strategies price discussing with your tax advisor this yr.
Using an S Corporation to Save on FICA
Some accountants might say this is a “high risk” strategy. I think the risk is high NO drawing a reasonable salary from your S corporation and there’s loads of room for planning. If you expect to earn greater than $60,000 in net income from your corporation this yr, you possibly can split your income between a rollover (receiving the 199A deduction) and a W-2 (limiting FICA liability) and realize significant tax savings.
If you are unsure what your net income might be this yr, consider a limited liability company so you possibly can convert to an S corporation when the time comes. Make sure you have a constructive conversation about salary and your salary must be greater than your payroll.
Family integration with the company
Almost every small business owner employs relations in their company. However, they often forget to compensate them as best as possible. Taxpayers should stop paying taxes first and only then give money to their children or cover their expenses. Instead, they will start deducting prevailing wages for services provided by their children in business and let the children cover their very own expenses.
Children under 18 years of age should NO receive W-2 or 1099 wages but are compensated as “outside work” under a sole proprietorship. If configured accurately, this may be achieved by enlisting the help of a company that supports the client’s S corporation.
Children 18 years of age or older will typically receive 1099 wages if they assist the company remotely while studying or serving on the company’s board of directors or advisors. However, if they act as a “rank and file employee,” they need to be paid via W-2 and comply with state and federal laws.
The bottom line is that you would be able to make huge tax savings by ensuring your kids pay their very own taxes on their income at a much lower rate than the taxes charged by the business owner or parents.
Health care and insurance costs
There are many opportunities for a taxpayer to save on taxes when it comes to health care and medical insurance expenses if they are proactive and involved in the planning process.
The Health Savings Account (HSA) is as strong as ever and represents a huge opportunity even for non-business owners. HSA tax is deductible for taxpayers on the first page of their tax return, no matter their income – and it never expires. Funds grow tax-free and are not a “use it or lose it” plan. The taxpayer may even invest the money himself, including in real estate.
A Health Reimbursement Arrangement (HRA) is one other incredible strategy, but it’s only for business owners. This is useful for individuals who have higher than average medical expenses. An HRA allows business owners without other employees to arrange their very own health care “benefit plan” and be reimbursed All health care expenses – thus obtaining a 100% deduction for all medical expenses.
Finally, it is necessary for business owners to keep in mind that a small business owner can make medical insurance 100% deductible, no matter whether the business owner insures other employees or not. A non-business owner would have to try unsuccessfully to itemize this expense.
Business trips
In my opinion, travel is currently one of the most underutilized tax breaks by small business owners. Unlike meals and entertainment, which are typically capped at 50%, travel expenses are 100% deductible. Travel expenses include airfare, baggage fees, hotel and accommodation, automotive rental and petrol, even valet parking, taxi, trains, tolls etc.
I try to write off all my trips by following a few easy rules. Consider the following five reasons to justify a reasonable travel expense:
1. Organize an annual company meeting. Every small business should conduct a board meeting with relations or close friends and hold legal board meetings while traveling.
2. Visit a client or client. Wherever a taxpayer travels, he or she should consider meeting a client or client and cultivating a relationship.
3. Visit the seller. The taxpayer should treat every trip as an opportunity to visit a seller or supplier and negotiate latest prices, visit the facility or talk about networking.
4. Attend a conference or workshop. Taxpayers should go searching for possible repair shops in the area they are visiting. Traveling for classes, whether tax, legal, business, marketing or technical, might be a loss in their business.
5. Checking the rental property. I have said it many times: Rental property is one of the best investments for every taxpayer to build wealth. It’s also an incredible tax profit and a tax-deferred or even tax-free way to build wealth.
Each of the above legitimate business purposes would justify a valid business expense and deduction for the business owner.
In short it’ll be okay Very an interesting yr for tax planning. Major laws might be adopted and latest opportunities may arise. It is essential that taxpayers meet with a qualified tax advisor and take control of their tax planning this yr. It doesn’t have to be complicated or intimidating. Just talk and find a plan that can work.