With so much to think about, small business owners may not make tax planning a priority. However, there are several good reasons to do so. First, it may be possible to reduce either business or personal income tax rates, which could reduce how much an individual pays out each year. Planning ahead may also make a business owner aware of tax credits and know ahead of time if the AMT will impact his or her tax return.
Putting money into a retirement account may lower taxes while also helping small business owners save enough for retirement. One such option available for the self-employed is the Simplified Employee Pension Retirement Arrangement otherwise known as a SEP-IRA. It allows contributions equal to 25 percent of business income up to $265,000 or a maximum of $53,000.