The #1 Financial Benefit of Being a Business Owner

#ForBusinessOwners #WealthBuilding

What’s the best thing about being a business owner?

Oh, the list is endless! From freedom and flexibility to controlling your own destiny, being a business owner offers unmatched opportunities. You can build something that compounds on itself year after year—yes, we’re setting aside the stress, frustration, and downsides for now!

But when it comes to financial benefits, business owners hold a significant advantage over W2 employees: the ability to maximize retirement contributions while reducing taxes.

The Financial Edge: Retirement Contributions

As a business owner, you control your company’s ability to make employer contributions to your retirement account. These contributions count as business expenses, reducing your taxable income.

This works particularly well if:

• Your company has fewer employees.

• You have significant net income, placing you in a high tax bracket.

Let’s explore some strategies you can discuss with your tax expert (don’t have one? Reach out—we can recommend someone!).

1. Freelancers: Solo 401(k) or SEP IRA

Freelancers and solopreneurs have powerful options for retirement savings:

• Solo 401(k): Allows both employee and employer contributions.

• SEP IRA: Employer contributions can be up to 25% of net income or $66,000 (2023 limit), whichever is lower.

In the right circumstances, you could contribute over $50,000 annually—entirely tax-deductible. That’s in addition to the employee contribution limit ($22,500 in 2023).

2. High Earners: Pension Plans

For business owners with substantial earnings, a defined benefit pension plan can be a game changer:

• Contribute hundreds of thousands of dollars annually into your retirement account.

• Contributions are tax-deductible as payroll expenses, yet they don’t count as taxable income for the owner.

These plans require careful setup and maintenance, so consult a tax expert or financial advisor to make it work for your unique situation.

3. Parents: Payroll for Kids

If you have kids, here’s an opportunity to shift dollars into a lower tax bracket:

• Pay your children through payroll for work they perform for your business.

• These earnings can go into custodial accounts (e.g., UTMA/UGMA) or college savings plans.

Even toddlers can participate! Just ensure you follow the rules to keep this strategy legal and compliant. The tax savings can add up significantly over time.

Maximize Your Wealth-Building Potential

For business owners focused on wealth building, the tax advantages are undeniable. Imagine directing your first $50,000 to $300,000+ earned directly into retirement accounts, generating no taxable income in the process.

Next Steps: Start Planning Today

• Discuss these strategies with your tax expert.

• Set up a Solo 401(k), SEP IRA, or pension plan as appropriate.

• Explore payroll opportunities for family members to optimize tax savings.

Take action now to leverage the unique financial benefits of being a business owner. Few people have this opportunity—make it count for your future!