What’s Your Exit Plan? Tax Saving Tips You Can’t Ignore
When you start your business, your main focus is on growing it. Very few entrepreneurs consider their exit strategy, particularly early on in their business. That’s a huge mistake! Planning ahead means you can retire or sell your business without losing a ton of money and today, we’re looking at exactly how to do that.
Entrepreneurs NEED a Retirement Exit Plan
Regular employees have an employer-sponsored 401(k) or a pension . . . but what about when you ARE the employer?
Did you know the IRS offers tax-advantaged retirement plans for business owners? If you’re not taking advantage of everything you can at this point in your career, you could reach retirement only to find that you’ve missed a lot of opportunities.
Take some time today to plan your future financial security and you’ll be very grateful you did in the future. Whether you retire, sell, or close the business someday, you’ll want to have everything set up to ensure you get the most from it.
Top Tax-Advantaged Retirement Savings Options for Entrepreneurs
At first glance, your choices can seem overwhelming. It’s helpful to talk to a tax expert to find out exactly what will work for your needs, but here’s a quick overview. The top options for your retirement savings include:
SEP IRA: Simple, yet flexible
SEP IRAs are designed specifically for small business owners and self-employed folks, so they’re pretty simple to set up and don’t require a ton of paperwork.
Solo 401(k): Roth option and higher contributions
If you’re on your own in your business and have no employees, this is a great option for you. It lets employees and employers contribute and can include a Roth option, which means you have tax-free withdrawals after retiring.
Defined Benefit Plans: Perfect for high-income entrepreneurs
Are you in a much higher tax bracket as an entrepreneur? You may want to look into defined benefit plans since they let you contribute much more than the previous two options.
Get Ready to Sell
Planning to sell your business? If you wait until the last minute to set everything up for taxes, you’ll end up losing plenty of money. Instead, start planning 2-5 years ahead of the sale. What you’re taxed on will tend to depend on what you’re selling. Commercial real estate and the actual business usually count as capital gains, but selling the inventory and equipment is usually ordinary income.
To reduce the amount of tax you pay when selling the business, consider taking installment payments over a few years. This can help prevent jumping into a higher tax bracket, so you’ll save money overall.
You may have the option of selling stock instead of assets, as well. This only works if you’re a corporation, but it can be a good way to qualify for capital gains taxes instead of skyrocketing those income tax rates!
Finally, look at maxing out your tax-deferred retirement contributions. You’ll have less taxable income in the year you make the sale and can spread your contributions out.
Plan Your Exit Today!
A solid retirement plan isn’t just about saving money for retirement, it’s about doing it the smart way with all the tax advantages possible. Make full use of SEP IRAs, Solo 401(k)s, and defined benefit plans to make your future more comfortable.
Need some help figuring out the perfect exit plan? Contact Ask Anna Tax today to learn more.
