There is another important reason why you would want your business classed as a C corp, despite the tax disadvantages. This is an advanced strategy that looks towards the future of your business and the potential avenues it could take. This will be discussed in more detail in a moment…

OPENING A 401(K) ACCOUNT

“The beauty of using a 401(k) is that you can invest that into many many things. You could do the standard security route, you could do real estate, you could even do Bitcoin.”

A 401(k) account is a retirement savings plan that helps employees to build an investment portfolio. It lets workers save and invest a piece of their paycheck before taxes are taken out. Taxes aren’t paid until the money is withdrawn from the account. Using a 401(k) account is an excellent beginning strategy for a growing business. This type of account can save on tax by securing some of your income in there, so it will not be taxed. This can happen in two ways.

Firstly you can put away your money as a profit sharing saving. This has a limit of either 25% of your total wage OR $55,000, whichever is the lesser. Secondly, you can invest in what is called elective participation (also known as elective deferrals), where you can put away up to $18,500 of your total annual income. These dollars are not included in your regular income, thus saving you a fair amount of tax dollars.

This does not necessarily mean that you will always put the maximum amount of income possible into your 401(k) account. As mentioned earlier, a fledgling business mostly focuses on developing/stocking new products and expanding their marketing reach. In this case, most of the income is being put back into the business. Whilst a 401(k) account can be helpful for tax savings, any profits should be used in a way that makes sense with your business goals.

TAKING ADVANTAGE OF AN ESTABLISHED BUSINESS: PERSONAL TAX STRATEGIES

The next stage that Deroin and Kemble take us through is when your business has moved beyond the initial establishment stages. As such, the goals are now different.

When businesses get to this point, it is common for them to begin focussing on things to do with inventory management such as forecasting and cashflow. The strategies discussed in the previous section are sufficient to get you through this period. However, there are also some personal tax strategies that can be taken advantage of at this juncture.

In particular, family can be a big advantage when it comes to saving on tax. If you are married and have a mortgage and children, then it is worth getting professional advice on how to maximize your deductions as these are all things associated with tax breaks.

In addition to this, you can use your business to maximise these advantages. For example, you can pay your children up to $12,000 a year in wages for helping out with the business. This can be anything from modelling in stock photos to assisting with admin and stock handling.

Deroin emphasizes that you can get very creative with what is considered ‘work’, but you must be careful to document each and every bit of labour you are paying them for – as you will need proof if you are ever audited. The biggest advantage of this is that you can funnel money directly through your family without it being included in your income tax calculations.

Kemble suggests that the most effective strategy for this money would be to have your child open a simple Roth IRA account. This account can store up to $55,000 in earned income and continue to grow tax free. However, it must be established at least 5 years before the child enters college.

A HIGH INCOME, THRIVING BUSINESS: WHAT NOW?

Deroin and Kemble move on here, and discuss a hypothetical business that has been running for over five years, has a handful of employees, providing $14 million in revenue and owns several warehouses. At this point, Derion and Kemble express that this is the time to take advantage of the more advanced tax strategies. There are a number of options available to you if you get to this stage of success, and the Amazon Accountants break them down into four strategies.