If you are a sole-proprietorship, all of your profit is subject to the 15% self-employment tax. If you gift 50% of your business to your spouse who isn’t working in the business, then suddenly that 50% share is no longer subject to the 15% self-employment tax (if your spouse meets certain conditions). In addition, you will enjoy a substantially-diminished risk of audit since partnerships are audited far less often than sole-proprietorships.
Have an employee in college? Reimburse up to $5,250 of that employee’s college expenses and avoid paying FICA tax on that reimbursement-compensation. In addition, that employee will not need to count this $5,250 as income. In rare circumstances, this also works for your non-dependent children over 21.
You can form a small business HRA and reimburse your employees up to $10K/year of their medical insurance and expenses. For example, if you pay your employees a wage of $50K, consider paying them $40K plus up to $10K of medical expense reimbursement. You will save your share of the FICA tax on the $10K (savings of $765) and the employees won’t pay FICA tax or income tax on the $10K. This works well for businesses that are owned and operated by a husband and wife only.
If you have a spouse that has employer-sponsored health insurance, then you are one of the lucky ones. For all other business-owners, you will have to choose between traditional health insurance, a Christian based healthcare sharing ministry, or a short-term medical plan. There are pros and cons to each of these choices. If you decide to choose traditional health insurance purchased from Healthcare.gov, then you will need to try to keep your adjusted gross income below a certain level so that you qualify for subsidies (the government pays part of your health insurance) – we can help come up with some ideas (contribute to an HSA, make a Traditional IRA contribution, etc.) to help you lower your adjusted gross income.
If you are a sole-proprietor and you own the building where your business is located, consider gifting the building to your spouse while keeping the business in your name. This allows you to pay your spouse rent that can be deducted from your business profit in order to save self-employment tax on your business profit.
The commercial building that you purchase for your business is generally depreciable over 39 years…but anything not permanently affixed to the structure or land is depreciable over 1, 5, 7, or 15 years. In the year you purchase the building, make sure to assign a value to anything that is not structural so that you can expense that value more quickly. This savings-idea applies to rentals as well.
You can deduct the full cost of your cell phone (even though you have some personal use) as a working condition fringe benefit. Don’t forget to deduct your home internet as well. You can take these deductions even if you don’t maintain a home office.