The ‘Trifecta’ model, tax strategies for small businesses

The ‘Trifecta’ model, tax strategies for small businesses

Taxes may be an even bigger hurdle for Americans who run a small business. What should small business owners keep in mind when tackling their tax filings?

KKOS Lawyers Founding and Senior Partner Mark Kohler joins Brad Smith on Yahoo Finance’s Wealth! to lay out the top tax strategies for small businesses.

“You could have an LLC taxed as an S corporation. But when business owners start to get around $60,000 in net income, so gross minus all my expenses… I need to be looking at converting to the S corporation,” Kohler lays out. “Very affordable to do, very simple to maintain. But what you’re doing is saving on the number one tax before state and fed [federal], And that’s FICA [Federal Insurance Contributions Act]. We want to save on self-employment tax.”

For more expert insight and the latest market action, click here to watch this full episode of Wealth!

This post was written by Luke Carberry Mogan.

Video Transcript

Starting your own business is one thing, but paying your taxes on your small business, a whole other beast joining us now with some advantageous tax tips for your small business, we’ve got Mark Kohler who is the KKOS Lawyers Senior Partner here.

Mark, great to have you here.

You got a better looking microphone than I do here.

Let’s begin as we’re kind of thinking about some of the strategies that small businesses are trying to implore for best tax savings.

Where should they begin?

What’s number one the lowest hanging fruit?

Well, first, thanks for having me.

This is such an exciting topic, right?

Talking about taxes that everybody’s been waiting for this, Brad.

I’m so grateful you guys are dedicating time to this.

This is awesome.

Um First big thing is, is for a business owner is to realize they’ve got to find an advisor and maybe get away from someone that’s just reporting their taxes.

They’re out there.

They could be a little hard to find.

But when you find an advisor, you’re planning your big picture.

A term we use when we work with our clients is trifecta.

We want to bring it all together with operations, the assets we’re investing and then bring it down to our trust or 1040.

And with this trifecta blueprint, when you have a big picture, you know, the direction you’re going and then you can start popping in those tax strategies that really move the needle with that in mind.

What are some of the hot button tax topics that you hear your clients asking about as they’re trying to best position themselves to take advantage where there are kind of loopholes that they can tap into.

Uh, you bet and, and small business owners are owners are starving for good tax tips and, and they just want some actionable items.

And the one we love the most is right up there in the top three is the S corporation, the S corporation.

And you could have an LLC taxed as an S corporation.

But when business owners start to get around 60,000 dollars in net income, so gross, minus all my expenses, I’m taking home around 60 I need to be looking at converting to the S corporation very affordable to do, very simple to maintain.

But what you’re doing is saving on the number one tax before state and fed.

And that’s FICA and we want to save on self employment tax.

A lot of accounts can be too conservative there.

You gotta drive your own car here, people, you’re the captain of your ship.

So have a conversation or review with someone about the self-employment tax issue and you actually reduce your chances of an audit when you move to an S Corp. Now you’re filing on a different tax return.

Super exciting mark.

Our, our team did the homework.

I mean, you’ve been an entrepreneur since it sounds like the age of 15, we’ve got a lot of tax code changes since then, especially for small businesses.

Is there one that’s more outsized in terms of those changes than the rest that small businesses should be tapping into?

You?

Bet I, and the, the technique that brings a lot of the strategies that’s come about in the last 6 to 8 years with the tax cuts and Jobs Act is using the family board meeting.

I love the family board because people business is family, family is business and so too many business owners, Americans pay taxes and then support the kids under age 18.

They may be going to college and so they pay taxes at these higher rates when they could get the kids involved in the business.

I want kids, spouses, the parents, any family members you’re supporting on a family board.

Now, what does, what that does now is it teaches them business, financial literacy, you’re getting their help, you’re taking tax write offs for travel, dining, having regular board meetings where you travel within reason and we’re now getting income into those kids tax returns where they can build credit, pay for their own tuition in college.

It’s just building that legacy.

And main street America is the backbone of this country.

And when we involve our family, we’re passing on a legacy.

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