The tax breaks made earlier on in 2017 were meant to help small business owners pay less in taxes. But, as it turns out, small business owners actually aren’t going to benefit in the long run. If they are contributing to their retirement in an IRA they will end up paying more in taxes for that money, and then when they go to withdraw that money they will be paying even more in taxes. In some cases they will only be able to deduct 80% of the contribution.
- Even if it means that a business owner may have to pay the full amount of taxes in the future, paying on a lower tax bracket in the present may be a financially better option.
- In order for small-business owners to understand the impact that taxes have on their business, they will need to work closely with financial professionals.
- Small-business owners can make present and future contributions to Roth IRA, or even making after-tax contributions to a 401(k) of their choice.
“The problem is that the small-business owner who qualifies for this deduction, and makes a contribution to their employer-sponsored retirement plan, will end up with a partial deduction of only 80% of the contribution.”