Tax Strategies

10 Business Tax Strategies to Consider for 2015


  1. Consider incorporating your sole proprietor or partnership. By operating your business through an S corporation, you may be able to save a lot of money in self-employment taxes (if set up properly) and reduce your chance of an IRS audit.


  1. Have your corporation reimburse you through an accountable plan. If you use your personal auto in your corporate business, an accountable plan may provide you with a better tax outcome. The corporation gets a tax deduction and your reimbursement isn’t subject to income taxes or payroll taxes for you or the company and it’s not subject to Alternate Minimum Tax or the limitations of miscellaneous itemized deductions as it would have been if you deducted the auto on your 1040.


  1. Claim a home office to increase auto deductions. Home offices which qualify as administrative offices increase tax benefits by converting non-deductible commuting into business miles. They also simplify recordkeeping by eliminating the need to track the first and last stop each day.


  1. Set up a Medical Expense Reimbursement Plan (MERP). In addition to a self-employed health insurance deduction, a MERP can allow you to deduct medical expenses as well (if you qualify). MERPs reduce both income and self-employment taxes. A MERP requires you to have an employee. If you are single, a MERP only works if you operate your business through a C corporation. It doesn’t work for the S corporate owner, but does work for sole proprietors, partnerships, or LLCs (if you hire your spouse).


  1. Establish a Health Savings Account (HSA). HSAs can be a great plan for those not eligible for MERPs (S corporation owners). Contributions to HSAs are deductible against income taxes. The tax-deductible contribution limits change slightly each year. For 2014 it was $3,300 for a single plan or $6,550 for a family plan. If over age 55 and extra $1,000 can be added to either plan.


  1. Fund your IRAs or business retirement plan. If you want to contribute more to your retirement than the IRA limit of $5,500 ($6,500, if over age 50), then you should consider establishing a tax deductible retirement plan, such as a SEP, SIMPLE or 401k plan.


  1. Accelerate Payment of Deductible Expenses. You can prepay expenses due early next year to accelerate your tax deduction a year early. Expenses charged to a credit card before year end are deductible this year even though the bill is paid next year.


  1. Buy equipment before year-end. If you expect to purchase equipment early next year, you may want to buy it before the end of the year, even if you have to use a credit card. This would allow you to get a tax deduction a year early and deduct a half-year worth of depreciation under the half-year convention and expense the balance using Section 179 expensing.


  1. Hire your kids to help in the business. Why pay your kids an allowance, when you can hire them to work in your business and deduct the payments to them as wages (if done correctly). Wages paid to your own kids (under 18) are not subject to Social Security, Medicare or federal unemployment taxes and you still get to claim them as your dependents. The first $6,200 of their wages would not be taxable, due to the standard deduction for a single person (2014). You must pay them a “reasonable” wage for the services they perform and they can help you with the things that you don’t have time to do, such as working on your website, social media, customer service, filing, marketing, shipping, deliveries and clean up.


  1. Hire your spouse. The only reason you may want to hire your spouse is if your spouse wants to contribute money to a 401(k) plan or if you are able to increase tax-favored fringe benefits for your family. Otherwise, it may not make sense to pay additional payroll taxes on income that would probably be reported on your joint tax return anyway.