Owning your own business has many advantages. You can set your own schedule, choose your income, take a vacation if necessary and you will certainly get along with your boss! Owning a business, however, also poses some challenges, including tax planning.

If you work for someone else, your employer handles many tax considerations. In this case, taxes on income, Social Security, and Medicare are withheld from your paycheck. As a business owner, responsibility for the amount of taxes you owe and the nature of the business you operate determines what taxes you must pay. Therefore, you may want to take steps to ensure that you meet all tax requirements effectively and beneficially for your business and for you.

Unfortunately, there is no way to avoid taxes, but it can be useful to determine which tax deductions you can use.

Depending on the type of business you run, you can save on taxes when hiring a family member. In this way, you transfer the business income to your relatives and your company can deduct reasonable compensation. Ultimately, this reduces the amount of taxable business income that flows to you.

For example, wages paid to children under the age of 18 are not subject to payroll tax, and a spouse may not be subject to federal unemployment tax with responsible taxes. You should be careful because the IRS may question the compensation of a family member if the amount does not appear reasonable considering the services provided. When hiring a minor family member, make sure your company complies with child labor laws.

Because you are self-employed, you have to take care of your own retirement needs. You can do this by creating an employer-funded pension plan that can provide a range of tax and non-tax benefits. With this plan, your business can be granted an immediate federal tax deduction to fund the plan. As a commercial clerk, you can usually also enter pre-tax dollars in an old-age account to increase deferred taxes until retirement. There are several types of retirement plans so be sure to explore all of your options and consider the complexity of each.

Since deductions reduce your taxable income, make sure that your company takes advantage of the business deductions to which you are entitled. You may be able to deduct a number of business expenses, including household rental or office costs, as well as the cost of office equipment, furniture, supplies, and public services. To be deductible, trading costs must be both normal (common and accepted in your trade or business) as necessary. If your expenses are partly for commercial purposes and partly for personal use, you can only deduct the portion associated with the business.