Let’s Talk About Taxes (And Why You’re Probably Paying Too Much)
Business owners often overpay in taxes because they miss out on legal deductions and smart tax strategies. You can lower your tax bill by hiring family members, using the Augusta Rule, setting up an Accountable Plan, and switching to an S-Corp. Here’s how each strategy works.
1. How Can Hiring Family Members Lower My Taxes?
You’ve probably heard this one before, but hiring your kids, spouse, or other family members can be one of the easiest ways to shift income and lower your tax liability.
Why It Works
- The IRS lets you pay your children under 18 tax-free up to $15,000/year (2025 limit) if they work for your sole proprietorship or family business.
- If your business is set up as an S-Corp or LLC, the rules change slightly, but you can still pay them a reasonable salary and shift some income into a lower tax bracket.
Real-Life Example
A business owner I worked with—let’s call him Mike—was running a growing landscaping company. His teenage son was already helping with product photography and social media, so Mike hired him officially, paid him $12,000 per year tax-free, and used that money to pay for his sons travel baseball.
Mike lowered his taxable income, his son got work experience, and the money stayed in the family instead of going to the IRS.
Bottom line: If your kids or spouse are helping out anyway, make it official and take advantage of the tax benefits.
2. What Is the Augusta Rule, and How Can It Reduce My Taxes?
Ever heard of IRC Section 280A(g)? Probably not—but it’s one of the best-kept secrets in the tax code. Also known as the Augusta Rule, this lets you rent your home to your business for up to 14 days per year—completely tax-free.
How It Works
- You charge your business fair market rent for business-related meetings, team retreats, or client events.
- The business writes off the rental expense as a deduction, and you personally don’t owe taxes on the rental income.
Real-Life Example
One business owner I worked with, Sarah, had a home with a beautiful backyard and a big dining space—perfect for hosting client dinners and strategic planning sessions. Instead of renting out a hotel conference room, she had her business pay her $1,500 per day for 10 days throughout the year for official business use.
That’s $15,000 in tax-free income—money she was already spending on business meetings, but now she’s keeping it.
Bottom line: If you have a home office or space where you can legitimately hold business activities, don’t overlook this one.
3. How Do Accountable Plans Help Business Owners Save on Taxes?
Here’s something most business owners don’t realize: If you’re using personal money for business expenses—things like internet, cell phone bills, home office costs, travel, or mileage—your business can reimburse you tax-free with an Accountable Plan.
Why It’s a No-Brainer
- The business gets a full deduction for reimbursing you.
- You receive the money tax-free instead of taking a draw or salary (which would be taxed).
How to Set It Up
- Step 1: Create an official Accountable Plan (your CPA can draft one, or you can find templates online).
- Step 2: Track expenses you pay personally that are related to business.
- Step 3: Have your business reimburse you monthly or quarterly.
Real-Life Example
A small business owner I worked with was spending over $10,000 per year on business-related travel, meals, and phone bills from his personal account. Once we set up an Accountable Plan, he started reimbursing himself tax-free, keeping thousands of dollars in his pocket each year instead of overpaying taxes.
Bottom line: If you’re not tracking personal expenses that benefit your business, you’re missing out on tax-free money.
4. How Can an S-Corp Election Save Business Owners Thousands?
If you're running an LLC and not taxed as an S-Corp, you could be paying way more in self-employment taxes than necessary.
Here’s Why It Works
- As a sole proprietor or LLC, all business income is subject to 15.3% self-employment tax (on top of regular income tax).
- When you elect S-Corp status, you pay yourself a “reasonable salary” and take the rest as distributions—which are not subject to self-employment tax.
How Much Can This Save You?
Let’s say you run a business that makes $150,000 per year in profit.
- As an LLC, you’d pay $22,950 in self-employment taxes.
- As an S-Corp, if you take $80,000 as salary and $70,000 as distributions, you only owe self-employment tax on the salary portion—cutting your tax bill by over $10,000.
Important Note: The IRS requires that you pay yourself a “reasonable” salary—so you can’t just pay yourself $20K and take the rest in distributions. A tax pro can help you determine a fair number.
Bottom line: If your business is making over $75K in profit per year, switching to an S-Corp could save you thousands in taxes.
Keep More of What You Earn
Business owners work too hard to give away more money than they have to. The tax code is full of legal ways to lower your tax bill—you just have to know where to look.
Key Takeaways:
- Hire family members to shift income and lower taxable wages.
- Use the Augusta Rule to rent your home to your business tax-free.
- Set up an Accountable Plan to reimburse yourself for business expenses.
- Elect S-Corp status to save thousands on self-employment taxes.
Most business owners don’t realize they’re leaving money on the table—but that’s where the right tax strategies come in.
Want to make sure you’re not overpaying? Let’s chat. A few smart tax moves today could save you thousands this year—and even more in the long run.
Schedule a consultation with FSC Wealth Advisors today to discuss your current situation.
 | About the Author |