Recently, I had a meeting with a prospective client who wants to reduce taxes as a business owner. Mr. and Mrs. Prospect operate a very profitable and stable software-enabled compliance business. From our conversation, it’s apparent that they could benefit wonderfully by working with a financial professional.
Paying Too Much in Taxes
They indicated that they pay too much in taxes. Fortunately, they run their own business and are in control of their own destiny. There are many ways to reduce taxes as a business owner. They include but are not limited to:
- Choose the right entity for tax purposes – S Corporation, C Corporation, LLC, etc.
- Max out your retirement with a Solo 401(k) and Pension Plan
- Research & Development for Software Tax Credits
S Corporations
Mr. and Mrs. Prospect’s business is ideal for an S Corp. So I asked them about setting one up to realize many tax benefits.
Mr. Prospect replied, “I don’t want to set up an S Corp because that costs money. I have to hire an attorney. I don’t want to do that!”
Tax Help
On our call, they mentioned they had an unexpected IRS bill. The way they explained it wasn’t very clear to me.
I asked if they could send me the IRS letter via a secure link so I can read it, interpret it, and help them.
“I don’t trust secure links!” the husband replied.
“What about email?” I asked.
“I won’t do that either.”
“Then can you text me a photo of the bill?”
“I don’t want a paper slash digital trail.”
“What about reading the letter to me and I take notes so I can better understand it?”
“No, we’ll do it ourselves.”
Sad Story
Based on this interaction, you can determine that they didn’t become clients. Sigh!
I share our dialogue because they really want help, but then push help away – probably not just from me, but from a lot of people. Sadly, they are help-rejecting complainers.
Their rejection(s) have cost themselves hundreds of thousands, if not millions of dollars. This decision making will continue to hamper their finances.
Other Ways to Reduce Taxes
During the prospect conversation we didn’t get to the other topics mentioned above. For your benefit, here are other ways to reduce taxes as a business owner:
- Proper Entity for Tax Purposes
- Solo 401(k) and Pension Plan for Retirement
- R&D Tax Credits
Business Entities
There are many business entities for tax purposes, such as S Corporations, C Corporations, and LLC’s.
With an S Corp you can save a lot on self-employment taxes with a reasonable salary and distributions from the business.
When you structure a company as a C Corp, the federal tax rate is a flat 21% and you can use QSBS.
LLCs are easy to manage and avoid double taxation. They can be good for companies just starting out.
Retirement Plans
You can save as much as $72,000 in 2026 with a Solo 401(k) plan. There are many requirements to qualify for this.
If your business is “cha-chinging” the cash register and you want to save more for retirement, you can also set up a pension plan. You will have to work with a third party to set up a pension, please contact me with questions.
You can do both plans at the same time. Contributions for both are tax-deductible and investment growth is tax deferred.
R&D Tax Credits
You must meet the following four criteria to get the R&D tax credit.
- Permitted purpose
- You are improving the function, performance, quality, reliability, or scalability of a product, formula, or software
- Technological in nature
- Must rely on hard science principles such as chemistry, physics, or computer science
- Eliminating Uncertainty
- Your intent must be to eliminate technical uncertainty in your methodology, capability, or business component’s design.
- Process of experimentation
- The company demonstrates experiments through discussing, designing, or developing alternatives
- Your experimentation process can include simulation, modeling, and systematic trial and error.
It’s best to work with a professional to see if you meet these requirements.
Making Your Company the Best for You
It’s always best to work with a professional, ask a lot of questions, and develop a strategy.
Remember the IRS doesn’t punish complicated situations. It penalizes lack of planning — leaving you with less cash.
I’m here to chat about how you can reduce your taxes as a business owner and avoid being a help-rejecting complainer.