How Pandemic-Stricken Small Businesses Can Lower Their Taxes

Pandemic-stricken small businesses can lower their taxes as a way to find some sort of relief. Here are just three of them:

1.- Create a 401(k) retirement plan with profit sharing, whereby employers make pretax contributions to the 401(k) plan on a quarterly or annual basis, which can be deducted from their taxes (for the previous tax year)

2.- Invest in a 412(e) plan with guaranteed annuities and life insurance, defined benefit pension plans that allow small-business owners to ramp up private investment while covering other costs — from payroll to retirement plan contributions. Since 412(e) plans are tax-qualified benefit plans, the entire amount contributed immediately becomes tax deductible for small businesses.

3.- Set up a section 125 cafeteria plan, a part of the Internal Revenue Service code that enables employers to use taxable benefits — say, a base salary — and convert them into nontaxable benefits. So-called cafeteria plans, which cover expenses related to medical care (including child care), are deducted from an employee’s paycheck before taxes are ever paid.

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