5 Tax Savings Strategies Most Business Owners Don’t Know About

Day 4: Deductions for Staff & Employee Benefits – Save on Taxes While Keeping Your Team Happy

Most business owners look for ways to cut taxes, but did you know that investing in your employees can be one of the smartest ways to do it?

That’s right—offering employee benefits isn’t just good for retention and morale, but also for your tax bill. The IRS allows generous deductions for business owners who take care of their employees.

Here’s how you can maximize deductions while staying IRS-compliant.

1. Health Insurance: A 100% Deduction (When Done Right)

✅ Fully deductible for the business (IRC § 106).

✅ Employees don’t pay income tax on employer-provided health benefits.

✅ Business owners can save big on payroll taxes.

🚨 What You Need to Know:

If you’re a sole proprietor, you can deduct health insurance premiums for yourself and your family under IRC § 162(l). But if you’re an S-Corp owner with more than 2% ownership, different rules apply—you must report premiums as wages, though you can still deduct them.

Pro tip: Consider setting up a Health Reimbursement Arrangement (HRA). This allows employees to get tax-free reimbursements for medical expenses, and your business gets a full deduction.

2. Retirement Contributions: A Double Win

Business owners can take deductions for contributing to employee retirement accounts, and employees get tax-free growth on their savings.

✅ Employer contributions to 401(k)s and SIMPLE IRAs are 100% deductible (IRC § 404).

✅ Safe Harbor 401(k) plans allow business owners to contribute to their own accounts while ensuring IRS compliance.

✅ A Defined Benefit Plan can allow high-earning business owners to stash away six figures annually, all tax-deductible.

💡 Why It’s Smart:

• Offering a retirement plan attracts top talent and improves retention.

• Contributions are tax-deductible for your business.

• Your own retirement savings grow tax-deferred.

3. Education Assistance: Tax-Free Tuition Reimbursements

Did you know you can pay for your employees’ education tax-free?

✅ Under IRC § 127, employers can provide up to $5,250 per employee per year in tuition assistance.

✅ Employees don’t pay income tax on this benefit.

✅ Employers fully deduct the cost as a business expense.

🚀 How to Use This:

• Help employees pay for college or professional certifications.

• Use it as an incentive for career growth and retention.

• Invest in industry-related courses to upskill your team.

Fun fact: If you run a family business, this can even apply to your own children if they are legitimate employees!

4. Business Meals: What’s Deductible in 2024?

Business meals are still deductible, but the IRS has tightened the rules in recent years.

✅ 50% deductible for business-related meals (IRC § 274(n)).

✅ 100% deductible if provided to employees at the workplace for business convenience.

🚨 What Won’t Fly:

❌ Taking a friend to dinner and claiming it’s “business.”

❌ Deducting meals without proper receipts and documentation.

❌ Expensive, lavish meals that the IRS deems “unreasonable.”

Keep records of who was at the meal and the business purpose to stay audit-proof.

5. Employee Wellness Programs & Gym Memberships

Businesses can deduct expenses related to employee wellness, including:

✅ On-site gyms or fitness centers (IRC § 132(j)(4)).

✅ Employee wellness programs that promote health and productivity.

✅ Counseling services and mental health benefits.

🚀 Pro tip: If you want to offer gym memberships, make sure it’s available to all employees and structured as a reimbursable expense to qualify as a tax-free benefit.

Tomorrow’s Topic: Leveraging Everyday Business Activities for Tax Savings

Not every tax-saving strategy requires setting up special plans—sometimes, it’s just about how you spend money on normal business expenses. Tomorrow, we’ll look at how travel, home office, vehicles, and other everyday activities can be leveraged for tax savings.

📢Have questions? Drop them in the comments or message me!