ANOTHER VIEW: There are tax benefits for owning a business

By Randy Brunson
Centurion Advisory Group

SUWANEE, Ga.  |  Many of you may know the tax benefits of business ownership. If you do, this will be a refresher. If you don’t, this information may help reduce your tax bill. 

Brunson

Keep in mind that the dollars you earn are yours. They are not “foregone revenue”, as the D.C. federal employee types would have you believe. Below is a brief list of some of them.

1. Expense it. This has limits.  But if you use your cell phone for business, that is a legitimate business expense. Your W-2 friends don’t get that benefit. Business travel can be extended to include personal or tourist days. Tax deductible? We think a case can be made. Shareholder meetings don’t have to be in your office. You can have solid business conversations where the air is warm and the beach is near. But, document, document.
2. If you sell your business, focus on structuring the transaction under the Qualified Small Business Stock (QSBS) rules. This can have a huge positive impact on your tax bill.
3. If you are the only employee of your business, or if you and your spouse are the only employees, you can set up a Solo 401(k). Aggregate maximum contributions for 2025 are $70,000 per person, $77,000 for those aged 50 to 59 or 64 or older, and $81,250 for those aged 60 to 63.
4. Qualified Business Income, or QBI, can reduce the taxable income from your business by 20 percent. There are limits and exclusions. But for many business owners, it is a nice gift.
5. Cash Flow Allocation. You can choose how much to take in salary or earned income, versus how much to take in distributions. The differences? Earned income is subject to FICA or Social Security taxes, as well as federal and if applicable, state income taxes. Distributions are subject to only federal and state income taxes. A note regarding this decision. Earned income is the only form of income that can be used for purposes of making retirement plan contributions. And is the only form of income which will generate a Social Security benefit.
6. Consulting and cash flow when in your 60’s. If you have retired from corporate yet want to work and have the opportunity, set up a Sub-S entity or LLC. Take your Social Security benefits. Have the consulting arrangement between the client and your business entity. And pay yourself (for 2025) no more than $1900 monthly in salary. Take the balance in distributions. This allows you to have solid cash flow and still retain your full Social Security benefits, even though you are younger than Full Retirement Age.
7. Pay your state taxes using a PTET. Essentially pay personal taxes at the business level to get around the $10,000 SALT cap.
8. Find something meaningful your children can do for your company. Take a significant part of their earnings and contribute to a Roth IRA. This has massive long-term positive results.
9. For those of you whose incomes are $500,000 to $2 million. In addition to the 401(k) or profit-sharing plan, set up a cash balance plan. Yes, the IRS allows your company to have two retirement plans. Structured well, and with the right mix of employee metrics, we have seen annual deductible contributions which range from $150,000 to more than $600,000, with as much as 90 percent of this (or more) accruing to the owner.

There’s more, but that’s enough for now.

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