3 Advanced Tax Strategies for Individual and Small Business Owners

3 Advanced Tax Strategies for Individual and Small Business Owners

March 13, 2023

No one (well, almost no one) enjoys tax season. Rather than viewing it as a headache, wouldn’t it be great to think of it as a season of strategizing for potential growth? But if you’re a small business owner, generic tax advice doesn’t always apply. Here are my top tax tips for small business owners. 

1. Get Your Team in Place

Success is just about impossible without the right tax team in place. The challenge for many small business owners is that they are so accustomed to wearing multiple hats. From managing employees and improving quality to marketing and growing your business, it’s often hard to know when to start outsourcing. 

When I begin working with a client, the first thing I do is make sure the right team is in place: 

  • A dependable payroll provider and bookkeeper (so you’re nice and organized come year-end and you’re ready to file your taxes)
  • A dependable accountant, enrolled agent, or any tax pro who really specializes in working with small business owners (so we can get you every single write-off you’re entitled to, and keep you in good standing with the IRS) 
  • An advisor who specializes in working with small business owners (like myself) who can put together a detailed, comprehensive plan (so we can reduce your taxes as much as possible on an ongoing basis) 

The reality is that we all have our areas of expertise and an important role to play on your financial journey. Having the right tax team in place has a major impact at year-end, when it comes time to pay taxes—and ultimately on your bottom line. 

2. Offset Losses

When you have a choppy, volatile market, like we’ve been experiencing, you want to offset any of your market gains with some market loss. This is a perfect opportunity to go through your portfolio, look for an opportunity to get out of positions or reduce exposure to certain positions, realize those losses, knowing we can have impact at year-end, from a tax standpoint. This strategy is called tax-loss harvesting. 

3. Max Out Contributions

Maxing out all your retirement contributions may provide an opportunity to pay yourself versus the IRS and potentially lower your adjusted gross income dollar for dollar:

  • Traditional IRA: With this trusty savings vehicle, you can contribute $6,500 a year. 
  • SIMPLE IRA: This is a great tool for small business owners who are in the startup phase, or don’t necessarily have a ton of employees. It’s very inexpensive, easy to administer, and you can contribute up to $15,500 a year. 
  • 401(k): Best for more complex situations, you can contribute up to $22,500 a year into this type of account. 
  • Solo/Individual 401(k): This is a great option for mom-and-pop shops, or a husband and wife running a small business, you can contribute $22,500 per year. 
  • Defined benefit plan: With this vehicle, as a small business owner, you can contribute up to $265,000 depending on your age and your income level. 
  • Catch-up contributions: If you are over age 50, do not forget about catch-up contributions! For example, for a 401(k) or solo 401(k), with a catch-up contribution of $7,500, a husband and wife could sock away $60,000 a year. Talk about having a major impact on the bottom line!

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. 

This information is not intended to be a substitute for individualized tax advice. We suggest that you discuss your specific tax situation with a qualified tax advisor.

Do You Need a Strategic Partner?

Tax planning strategies can get confusing, we understand. Remember that you don’t have to walk your financial journey alone. If you’re a small business owner in need of a strategic partner who has experience serving clients just like you, our James Financial Group team is ready to step in. If you have any questions about these tips or about your specific situation, please reach out today to schedule a no-obligation, get-acquainted meeting, or call us at 207-504-3614.

About Jody

Jody James is an LPL financial advisor at James Financial Group, a firm that takes the mystery out of investing, managing risk, and preparing for retirement. With over 10 years of experience in the wealth management industry, Jody works closely with individuals and small business owners to craft creative and customized strategies that allow them to work toward their financial and life goals and preserve their wealth. Serving as a bridge between Wall Street and Main Street, Jody loves the juxtaposition and synergy as he helps clients pursue their dreams while also making an impact on the local community—raising capital for other businesses, entrepreneurs, and innovators.

Jody has a bachelor’s degree in history from Le Moyne College, an MBA from Brandeis University, and holds the Series 7 and Series 66 certifications through LPL Financial. When he’s not working, he enjoys traveling, working out, and spending time with his wife and three children, whom he adores. He’s also a huge New England Patriots fan. To learn more about Jody, connect with him on LinkedIn.