Tax Saving Strategies For Sole Proprietors

  1. Put Your Children on Your Payroll

If your kids are under 18, you can hire them to take care of business chores and save on federal self-employment taxes of up to 15.3%. As long as the total wages you’re paying your child are less than $12,400 for the year, the child doesn’t have to pay any taxes on their return – A deduction for your business with no tax liability for the child.

You can also contribute up to $6,000 to an IRA on behalf of your child and claim a tax deduction for the contribution. Again, no tax liability for the child.

So, the maximum deduction that can be claimed for each child under 18 years is $18,400 without triggering any tax liability for the child.

Note: This tax strategy is only open to sole proprietors and spousal partnerships.

  1. Buy a New or Used SUV, Crossover Vehicle, or Van

Suppose you buy a new or used SUV or crossover vehicle classified as a truck and has a gross weight of 6,001 pounds or more. This newly purchased vehicle provides you the following fantastic tax benefits:

  • The capability to elect bonus depreciation of 100%
  • The capability to select Section 179 expense of up to $25,500
  • No luxury limits depreciation deductions
  1. Use section 105 reimbursement plan

Say you are married and have no employees in your sole proprietorship, you can hire your spouse as an employee and cover them with a Section 105 family medical expense plan. No need to pay them any wages; instead, their compensation package will consist of reimbursement benefits for their health insurance, your health insurance, and all the family’s out-of-pocket medical expenses.

If you are single and have no employees, you will have to form a C corporation to make this strategy work.

  1. Smartphones deduction

The tax code recently took off the smartphone from the dreaded listed property category, making your business smartphone easy to deduct. Moreover, you can give your employees smartphones or reimburse the cost of their phones as working condition benefits (deductible for you, non-taxable to the employees).

Please contact me if you would like to discuss any of the strategies above. I look forward to hearing from you.