For instance, owners who work from home some of the time should be able to write off a modest portion of their home-internet and cell-phone bills—say, between 30% and 40%. “These are easy items to get reimbursed for through your business” and the business can deduct them as necessary expenses, Primeau says.
Or take travel. An entrepreneur’s full airfare for a business trip is deductible even if the trip is extended a day or two to sightsee, provided the travel’s primary purpose is business. “By incorporating business and personal travel together, you can write off some of the expense,” Primeau says.
Passed By
Business clients frequently squander the chance to put their children on the company payroll. An owner’s child can be paid for age- and skill-appropriate tasks such as shredding documents, tidying the office or modeling for the company website. The child actually has to do something, pay must be reasonable for the job performed, and other requirements must be met. But the child won’t owe any federal income tax on earnings up to the standard deduction, which is $12,550 this year for a single filer.
The earnings can be contributed to the child’s 529 plan or Roth IRA, both of which offer tax-free growth. “So the family gets dollars out of the business at no income tax cost and puts them in accounts that are tax free. That’s about the biggest home run there is,” Primeau says.
Entrepreneurs also overlook establishing retirement plans that let them make sizable, tax-deductible contributions for their own retirement. For instance, by establishing and contributing to a traditional defined-benefit pension plan or a cash-balance plan, a business owner may be able to sock away a six-figure, pre-tax amount annually for herself.
For a one-person (or owner and spouse) operation, a one-participant 401(k) is probably the simplest solution, says Primeau. Filing an annual IRS return for the plan isn’t necessary until the combined assets in all of the client’s one-participant plans top $250,000.