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How Small Business Owners Can Reduce Their Taxes After January 1 But Before Filing in April

Attorney Thomas B. Burton discusses some ways small business owners can reduce their taxes after the 1st of the year, but before they file their tax return in April.

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Transcript of Video: How Small Business Owners Can Reduce Their Taxes After January 1 But Before Filing in April

Today's topic is specifically for small

business owners

specifically, self-employed small

business owners and you'll see I created

a video about how can you reduce your

taxes after the tax year has ended but

before you file so for example the tax

year ends on December 31 but most

Americans aren't required to file their

taxes until around April 15th of the

following year and that April 15th date

as you know varies depending on whether

it falls on a weekend it can be slightly

later but what many people didn't know

and what I didn't know until I started

studying taxes in detail is that there

is a way to reduce your taxable income

after the tax year ends, I had a video I

created about how you can reduce your

taxes before the end of the tax year but

what about that four months from January

until you file in April and the best way

to do that is by contributing to an IRA

which can drive down your income reduce

your taxable income for that year now

for wage earners watch my previous video

because you're subject to the limit of

six thousand dollars for age 50 and

under for 2019 or $7,000 for age 50 and

older but for small business owners

especially if you're self-employed small

business owner like myself there are two

there are a couple other plans you could

look at one of which is the SEP IRA and

that allows you to contribute up to 25

percent of up to 280,000 dollars in

compensation or 25 percent of net

self-employment earnings and that's

defined as self-employment income minus your

SEP IRA contributions and one half of

the self-employment tax so a SEP IRA can

be a great way to contribute more than

what you can contribute as a wage earner

because remember it's generally that

$6,000 for

age 50 and under but the maximum you can put in

a SEP IRA is up to fifty-six thousand

dollars per taxable year and you think

about the ability of that to really

change the tax figures for you in any

given year so if you had a really good

year and you want to drive down your

income you could contribute a lot more

money to your SEP IRA another plan to look at

would be a simple IRA and you can use

that the SEP is only if you're

self-employed but the Simple you can use

if you're self-employed or run your own

business and that the Simple plan has

some different contribution levels but

if you have employees you might want to

talk to your tax and financial advisor

about that versus the SEP which is just

for a strictly solo self-employed person

and the annual contribution limit for

Simple I raise thirteen thousand or

sixteen thousand if you're over age 50

and employees can contribute two percent

of compensation or can match

contributions up to a maximum of three

percent of compensation there's also

401k plans you can put in place for

either a self-employed solo individual

or a business so I suggest if your small

business is doing better and you need to

look at ways to reduce your taxable tax

burden but also save for retirement in

your later years you should look at some

of these plans and be aware even if you

don't do one of these special plans for

a business owner you can contribute to

that traditional IRA at any time before

you file your taxes between January 1

and April 15 for the previous tax year

and if you don't know how to do this

speak with your financial advisor and your

CPA and they can help show you how that

changes the numbers on your tax return

so that's today's tax tip thank you for


© 2020 Burton Law LLC. All Rights Reserved.

Transcript and captions provided for ease of access for the hearing impaired.

For questions about this topic, or to suggest a topic for a future blog post, please contact my office.

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