Tax Strategies for Entrepreneurs

Manny Frangiadakis’ inaugural segment as the monthly financial reporter for Radio Entrepreneurs took place on February 27th, 2015. He and host Jeff Davis discussed the importance of having a retirement account and strategies for mitigating taxes for business owners.

For most business owners, it’s a priority to figure out a financial strategy that benefits their business, their employees, and potentially helps them save money on taxes in the process. It’s optimal to work with a financial advisor to accomplish this, says Manny, since the cost of living continues to rise and contribution limits for different types of retirement accounts (e.g., a 401k or a Roth IRA) tend to increase on a yearly basis. Age is also a factor, he points out, since “catch-up” contributions are allowed as you get closer to retirement.

For entrepreneurs whose business is relatively new, Manny recommends establishing a corporate retirement plan as soon as the company becomes profitable. Depending on the plan you choose, how many of your employees participate in the plan and how you decide to handle matched contributions, certain items may be tax-deductible. As a bonus, Manny adds, having a great retirement plan will help you retain great employees and recruit talent.”At the end of the day,” he says, “no one wants to work where…they’re not going to be taken care of.”

“It says something about the way you think about people,” adds Jeff, “and how you care about people…helping them to live their lives.” According to Manny, the Department of Labor looks closely at whether business owners are providing the right financial plans for their corporate retirement plans and enough education for their employees to help them make the right investment decisions. “The Supreme Court…is looking to pass a law where they can allow employees to sue their employer for actually having higher fees in their 401(k) plans due to mutual funds,” he warns. To avoid such issues, Manny stresses the importance of having a plan advisor who works as a fiduciary. Keep in mind, he adds, that “big brokerage firms can’t take on fiduciary responsibilities.”

Jeff points out that there are a lot of retirement plan accounts to choose from, so plan sponsors need to rely on outside advice to fully understand their options. “There [are] different strategies,” agrees Manny, “and it comes down to…the size of the business, what you’re actually putting away, whether you want a match, whether you don’t want a match, and then you’ve got to look at it from a different perspective. Some plans are going to allow you to put $18,500 away into your retirement plan, some are only going to let you put $5500, so it depends on each individual strategy that the business owner decides to go with. On top of that, you can have your own personal retirement account outside of your corporate retirement account.”

The bottom line is, you should establish a corporate retirement plan for your business as soon as you are able to. The best way to do this is to work closely with a financial advisor, and make sure he or she is a fiduciary, to ensure you’re meeting regulatory requirements and providing the best level of service to your employees. Not only can this help you mitigate taxes, but also it can help you attract and retain great employees.