5 Ways Your Business Benefits You

You’re in business for a lot of reasons, and one of the biggest ones is so that you can make money for yourself and your family.

There are five primary ways that you can take money out of your company:

1. Salary you draw
2. Loans from the company to you personally
3. Distributions/dividends
4. Investments funded through the business
5. Benefits

Plus, of course, there is the value of the business itself. For now let’s talk about the money you get while the business is operating.

There are tax consequences for each of these:

• Salary: Deductible for the business; taxable income for you
• Loans: Neither deduction nor income for the business or for you, but could create an issue when using a C Corporation or where you fail to repay the loans
• Distributions/Dividends: Not a deductible expense to the business; taxable income for you
• Investments: Taxation consequences vary, based on strategy
• Benefits : Deductible for the business; not taxable to you (in most cases)

When you’re looking for how you can draw money from your business, first consider the benefits you can receive. Benefits are the best of both worlds. Your company gets a deduction, and you get a benefit, without paying taxes.

Let’s look at some of the common benefits that your company can have. Some of them are nondiscriminatory. That means that if you take the deduction, you’re going to have to offer the same deduction to all full-time employees. With all of them, you will need to be an employee as well.

• Medical Benefits: This includes medical insurance premiums, HSA (Health Savings Accounts), FSA (Flexible Savings Accounts), and Medical Expense Reimbursement Plans (MERP)
• Pension Benefits: The next big section of benefits to consider are all the different types of retirement plans. Most of these are nondiscriminatory which means you have to cover all of your employees as well. However, there is a way around that with a two-tiered system. The base level is open to all employees, and typically takes the form of a 401(k) plan. Now that you’ve offered a benefit to everyone, you are free to add a second plan, which is open only to executives. In fact, by stacking plans like this you could find yourself being able to put away retirement deductions of $150,000 or more per year. These plan contributions would all be deductible from your personal income and a great way for you to invest tax-deferred or tax-free.
• Education Benefits: Once you have a business, any education that helps you be a better business owner becomes a deductible expense.
• C Corporation Benefits: We’ve already discussed the increased tax breaks for medical insurance and MERP with the C Corporation. But there’s plenty more, including public transportation passes, term life insurance, childcare and fitness club memberships.

When we wrote Smart Business Stupid Business, one of our goals was to give new business owners the information they needed to make informed decisions. Real, practical information that you can use every day. And, because we couldn’t fit everything into a single book, we filled an entire website with the overflow. Look at the back of your copy of Smart Business Stupid Business for the special code. Enter that code on our website, and gain access to hours of audio, downloads and more.