Ways to cut your company’s tax bill

If you’re running a small business, your taxes certainly aren’t going to go down in the foreseeable future. If anything, they’ll likely rise.

Many of my small-business clients ask me for tax savings advice, and, unfortunately, the options this year are limited. But there’s one thing you can — and should — be doing that will not only cut your tax bill but significantly help you find and retain the best talent. What’s the move? It’s simple: Give more to your employees.

That’s because when you offer more compensation and benefits to your workers, you take advantage of some very generous federal deductions and credits available to help lower your overall tax bill. So why give more than you need to the government, when you can give that money to the people who really matter most to your business, right?

For example, until 2025 and thanks to the 2020 CARES Act, if you help your employees out with their student loan payments, you can deduct up to $5,250 of the expense — and they don’t get taxed. That’s for each employee. Imagine how valuable (and attractive) that benefit is to a young person burdened with college loans.

Besides student loans, you can also pay for an employee’s educational expenses — up to $5,250 — and get a tax deduction. Here’s the interesting part: The expenses don’t even have to be job related. So maybe you kick in toward a cooking or yoga class to help a person’s well-being. You still get the deduction, and your employee doesn’t get taxed.

Also, and through 2025, if you hire a veteran, someone off welfare or out of prison or — here’s a big one — who’s been unemployed for six months, you get the chance to cut your tax bill by as much as $9,600 with the Work Opportunity Tax Credit. Before you hire that person, check with your accountant, do the math, and share that credit in the form of a hiring bonus. That could be the deciding factor for a worker to join your company.

Want to help with your employees’ dependents? As I wrote about previously, by setting up a Dependent Care Flexible Spending Account, or DCFSA, you can contribute — and deduct — up to $5,000 in pretax money to each employee to be used to take care of kids or an older dependent. There’s also an available federal credit against the taxes you owe of up to 10% of your costs (to a maximum of $150,000) if your company provides its own child-care facility or contracts with an existing child-care provider.

Your health insurance plan should also be reconsidered. Health insurance remains one of the most-requested employee benefits, and the more generous your plan, the greater odds you will have attracting better people and retaining your best staff. Consider increasing the amount of this expense that you share with your employees. Also think about providing a Health Savings Account plan that allows both you and your employees to save, this year, as much as $3,650 (individual) and $7,300 (family) of pretax dollars to use for unreimbursed expenses such as dental, vision, and some types of over-the-counter medications. Too, revisit your coverage for mental health benefits and consider signing up for such platforms as Better Up and Pluma, which can provide private coaching and counseling.

Don’t have a 401(k) plan? Get one, and thanks to the 2019 SECURE Act, the government will reimburse you for half of the costs. If you have a 401(k) plan, good for you. Change to make it “automatic enrollment” and get a tax credit of $500 a year over the next three years. Then push your employees to save by offering matching contributions.

For those employees who are interested, help them with adoption expenses. In 2022 you can deduct up to $14,890 when you reimburse an employee’s qualified adoption costs, and the employee doesn’t get taxed. You may not even have to use this benefit very often, but it’s a great one to offer and says something about how you care about your employees.

If you have more than 50 employees and an employee takes time off under the Family Medical Leave Act, you don’t have to pay the person for the 12 weeks allowed. But you may want to think about it. Why? Because even if you pay 50% of the wages, you can get a 12.5% tax credit back on those wages. The credit goes up to 25% if you pay 100% of the compensation.

Finally, and even more simple: Raise wages. Pay more bonuses. Boost your employees’ earnings. They need it as inflation continues to rise. And the better your compensation rates, the greater the chance you’ll retain those good people, and attract more talent to your company.

Or you can ignore all my advice and just give the money to the federal government instead of your workers. Your choice.

Gene Marks is a certified public accountant and the owner of the Marks Group, a technology and financial management consulting firm in Bala Cynwyd.