Tax Strategies to Reduce Your Taxes as a Schedule C Taxpayer: Maximize Deductions and Save Big

Tax strategies to lower your schedule c taxes – As a small business owner, you know that tax season can be stressful. But with some planning, you can reduce your tax bill and keep more of your hard-earned money. Here are four strategies to lower your Schedule C taxes:

1) Claim all your deductions.

2) Keep track of your business expenses.

3) Take advantage of tax breaks for small businesses.

4) Use a tax professional to help you file your return.

Here are ten tax strategies to reduce your taxes as a schedule C taxpayer:

1. Reduce your health insurance premium costby using a Section 105 plan: 

If you hire your spouse as an employee in your business, you may reimburse the employee-spouse for family medical expenses, turning those reimbursements into business expenses that are deductible as employee welfare benefits. You cover your employee-spouse with family coverage, and that’s how you, the employer-spouse, get your coverage.

2. Hire under-18 children to reduce taxes:

One option you may not have considered is to put your under-age-18 child to work. Not only will they make some extra money, but they can also help you reduce your taxable income. If you employ your underage child, your income from hiring your child does not appear to be taxable to you, but your company is responsible for paying the payroll taxes. With the standard deduction, your child’s tax-free income could be worth more than $12,000.

3. You can make your spouse an employee: 

It’s no secret that many couples forgo the traditional workforce and stay home together. But what if one spouse wants to work and the other doesn’t? Or what if one spouse wants to work and the other wants to stay home? There are many ways to make this work, but employing your spouse without paying them a wage is one option that can save you some money. Instead of paying your employee-spouse wages on a W-2, you can reimburse your family for all income-related medical expenses. This allows you to use medical expenses as a deduction against your business income, where the removal decreases both self-employment and income taxes.

4. Receive rent from spouse and avoid self-employment taxes: 

It may seem counterintuitive, but you can save on self-employment taxes by renting from your spouse. The IRS allows taxpayers to deduct part of their rent or mortgage payments as business expenses. This can be significant savings, especially if you are in the higher tax brackets. However, the rental agreement must be in writing and state that the rent is for business purposes only.

If you own an office building or other assets, an agreement with your spouse could reduce your self-employment taxes by allowing you to move income from Schedule C to Schedule E.

5. Use a home office as a primary office to increase business vehicle deductions and turn personal expenses into business expenses:

You are converting non-deductible personal expenses, such as utilities and insurance premiums, into deductible business expenditures, and dividing a portion of the house as business property which allows a part of your home office to be deducted from yearly taxable revenue. When you set up your home office as your principal place of business, the miles traveled between these two destinations will no longer be non-deductible commuting miles but deductible business miles.

6. Identify fringe benefits you can personally take advantage of:

Under the de minimis fringe benefit rules, your business deducts the cost of flowers, fruit, books, and similar items given to you or your employees under special circumstances. The recipients (both you and your employees) receive these fringe benefits tax-free.

7. Combine vehicle deductions with a home office to reap significant tax savings this year:

There are major tax savings with the heavy vehicle and home office combo. The heavy vehicle produces quick deductions. And a home office that qualifies as a principal office eliminates commuting miles, which can dramatically increase a vehicle’s business-use percentage.

8. Domestic Travel Expenses

If you travel to a destination within the United States for business purposes, and you spend the majority of your trip days on business, you deduct 100 per cent of your direct route transportation expenses. You may deduct meals and lodging for business days as well.

9. Use the 7-day rule for business travel outside the US:

Spend fewer than seven business days travelling to Canada. Mexico, Jamaica, or a similar far-off location, 100 per cent of transportation costs from your foreign business destination will be deductible from your taxable income.

10. Cell phone expenses

The tax code eliminated phones from the prohibited listed property classification, making them simple to deduct for your company. Moreover, you can offer your smartphones for free to your employees or reimburse their mobile phones as working conditions remarked fringe benefits (deduction for you and not taxable to your employees).

At Molen & Associates, we specialize in self-employed and small business owners. If you want to learn more about tax strategies and deductions to keep more of your profits, call us at 281-440-6279.