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Hey everybody, this is Gene Marks and welcome to this week’s episode of The Hartford’s Small Biz Ahead. Where I’m going to try and share some thoughts with you and some advice that will hopefully help you run your business. This week I want to talk a little bit about cutting your taxes and I hear from a lot of my clients, a lot of my readers, a lot of people say to me “hey Gene, you’re a CPA. What’s the best thing I can do in 2022 to cut the taxes of my business?” And yeah, there are some things you can do straight tax wise, investing in capital equipment and maximizing your retirement accounts or funding for your for other things that you might – charitable contributions. But lemme tell you something, there really is something that you can do to significantly cut your taxes this year…
And I wanna make sure that you’re aware of it because it has to do with your employees. I mean, while President Biden and other politicians in Washington are continuing to push their build back better plan which includes increases in corporate taxes and there’s higher personal tax rates on households with incomes of more than $400,000. I mean, if the Democrats do win complete control of Congress next November that plan or significant portions of it could very well pass. But listen, regardless of what happens, there is one thing for sure, if you’re running a business and that’s your taxes, certainly aren’t gonna go down in the foreseeable future. If anything, they’re gonna likely rise. So, like I said earlier, many of my clients are asking me for tax advice and unfortunately the option of the year are kind of limiting, but there is one thing you can do and what you should be doing that will not only cut your tax bill, but significantly help you find and retain the best talent possible.
And what is that move? It’s simple. Give more to your employees. That’s because when you offer more compensation and benefits to your workers, you can take advantage of some very generous federal deductions and credits available to help you lower your overall tax bill. So why give more than you need to the government, right? When you can just give that money to the people who really matter most to your business. Let me give you some examples. Until 2025, for example, and thanks to the 2020 Cares Act. If you help your employees out with their student loan payments, you can deduct up to $5,250 of that expense and you won’t get taxed. And neither will they. That’s for each employees. Student debt is a big issue. Imagine how valuable and attractive that benefit is to a young person’s burden with college loans. Help your employees out with student debt, get a tax deduction so…
They don’t get taxed. Besides student loans, you can also pay for an employee’s educational expenses, again, up to $5,250 bucks, and also get a tax deduction and your employees don’t get taxed. And here’s the interesting part about these educational expenses. They don’t even have to be job related. So maybe you kicking a grant towards a cooking or yoga class to help a person’s wellbeing. You still get the deduction, but your employee doesn’t get taxed. Also and through 2025, if you hire a veteran, someone off of welfare or out of prison, or here’s the big one, someone who’s been unemployed for six months, you get the chance to cut your tax bill by as much as $9,600, thanks to the work opportunity tax credit. So before you hire that person, check with your accountant, do the math and share that credit in the form of a hiring bonus.
That could be the deciding factor for a worker to join your company. Want to help with your employee’s dependents. I talked last week about setting up a dependent care, flexible spending account or DCFSA. You can contribute and deduct up to $5,000 in pre-tax money to each employee and they can use that to take care of their kids or an older dependent. There’s also an available federal credit against the taxes you owe up to 10% of your costs, a maximum of 150,000 bucks. If your company provides its own childcare facility or contracts with an existing childcare provider, and then let’s talk about health insurance, your health insurance plan should definitely be reconsidered. Health insurance remains one of the top, most requested employee benefits in the more generous your plan, the greater the odds you’ll have of attracting better people and retaining your best staff.
So consider increasing the amount of this expense that you share with your employees. Also think about providing a health savings account where both you and your employees can save up to $3,650 individual or $7,300 family of pre-tax dollars to use for unreimbursed medical expenses like dental and vision, and some types of over the county medications. Also revisit your coverage for mental health benefits and consider signing up for platforms like BetterUp and Pluma, which can provide private coaching and counseling to those employees who need the help. Let’s talk about retirement. Now, if you have a 401k plan, get one. I’ve talked about this before. Thanks to the 2019 Secure Act. The government will reimburse you for up to half the costs. If you have a 401k plan, good for you, change the wording to make it automatic enrollment and get a tax credit of 500 bucks a year over the next three years, then push your employees to save by offering matching contributions.
You get a deduction, not only that, by the way that you can, the more they save, the more you can save in your 401k without hitting any of the ceilings of those discrimination rules. For those employees who can’t have kids, help them with adoption expenses. In 2022, you can deduct up to $14,890. When you reimburse an employee’s qualified adoption cost and the employee doesn’t get taxed for this – you get the deduction. You may not even have to use the benefit very often, but you know, it’s a great one to offer and says something about how you carry your employees. If you have more than 50 employees and an employee takes time off under the Family and Medical Leave Act, you don’t have to pay them for the 12 weeks allowed. You have to retain their job, though.
However, you may wanna think about that because if you pay 50% of their wages during that period, you can get a 12 and a half percent tax credit back on their wages. The credit goes up to 25%. If you pay a hundred percent of their compensation. Finally, and even more simply just raise wages, pay more bonuses, right? I mean, make ’em bonuses that are just discretionary. Boost your employees earnings. They need it. As inflation continues to rise and the better your compensation rates, the greater the chance you’ll retain those people and attract more talent to your company. Or listen, you can ignore all of my advice and instead just give the money to the federal government instead of your workers, right? It’s your choice. I hope this information helps. This is all stuff that you should be doing this year. Pay your employees a little bit more. Why not pay them instead of giving it to the federal government, right? Consider all of that. And some of the other things you can do to reduce your taxes this year. Like I said, I hope this information helps. My name is Gene Marks. You have been listening to The Small Biz Ahead podcast. You can get more advice and insights and help and running your business by visiting us at SmallBizAhead.com or SBA.TheHartford.com. I will be back next week with some more information to help you run your business. Thanks and take care.
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