BLOG POST: Side Businesses and Tax Deferral

Side Businesses and Tax Deferral

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Posted ByLifeMark Test
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If you’re a small business owner who has a significant income, minimizing your taxes can do a lot to improve your income. There are a number of different shields people use – depreciation, and business expense deductions for example, we won’t go into these, instead in this article, we’ll talk about setting up other companies and some of the things this can do for your tax liability.

First of all – you can’t set up dozens of 401ks and contribute the maximum (currently $18,000) to each of them. The caps on defined contribution plans and deferrals are set at the personal level not the employer level. However, it may not work with the structure of your current business, but if have a stable and profitable new business with yourself as the sole employee, you could set up a pension plan for yourself and fund that. Depending on your age, you may be able to set aside considerable amount of money.

Another way you could maximize tax savings is to set up a captive insurance to insure your main company. Your premium payments to the captive would be tax deductible for the main company, and captives that write under $1.2 million in premium per year are eligible for 831b elections, where the captive would be taxable only on the investment returns of the portfolio.

In either case, alternatively you can also use participation and ownership of captives or pension plans as a way to reward and retain top talent as well, or, in the case of the captive, as a creative way of estate planning – by allowing heirs to own the captive, assets can be transferred without it being a gift. However, in all cases, these are extremely complex, sophisticated, and sometimes aggressive tax mitigation strategies. While all of these are legitimate and legal strategies, they are closely scrutinized by regulators. In dealing with these types of structures, expertise is paramount! Make absolutely sure you find a qualified and experienced advisor to help you through the process.

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