Top 10 Tax Strategies for Bitcoin Business Owners

If you're a business owner, you know that managing taxes effectively is essential to keeping more of what you earn and eliminating unnecessary donations to Uncle Sam. By using some smart tax strategies, you can reduce your tax liability while freeing up more resources to grow your business or stack more sats depending on your goal. Here are the top ten tax-saving strategies every savvy business owner should have in their toolkit (in no particular order)...

1. Electing S-Corp Status

One of the easiest ways to save on self-employment taxes is by electing S-Corporation status. If you're operating as an LLC or a sole proprietorship, switching to an S-Corp can make a significant difference. With an S-Corp, you’re required to pay yourself a reasonable salary, but profits above that amount can be taken as distributions, which are not subject to self-employment taxes. Paying less into social security and medicare offer you the opportunity to stack more sats or reinvest in your business appropriately to scale.


2. QBI Optimization

The Qualified Business Income (QBI) deduction, also known as the Section 199A deduction, is a tax-saving tool introduced by the Tax Cuts and Jobs Act (TCJA) in 2017. This valuable deduction allows eligible business owners to deduct up to 20% of their qualified business income (QBI) from sole proprietorships, partnerships, S-Corps, and LLCs. However, this deduction is set to sunset in 2026, so maximizing this before time runs out is important.
For most businesses, the QBI deduction offers a straightforward 20% deduction on qualified income, but there are additional complexities for higher-income earners. If your taxable income exceeds certain thresholds, the deduction becomes the lesser of 20% business profits or 50% of W2 wages paid.
To optimize the deduction at higher income levels, you must be intentional with the amount of W2 wages you are paying yourself and others compared to business profits. Often S-Corp owners seek to pay themselves a very low salary to avoid self employment taxes without recognizing how that is hindering their QBI deduction substantially. It’s important to work with your tax professional or financial planner to optimize this deduction to maximize tax savings that could equate to $50,000 or more.

3. Pass-Through Entity Election

Many states offer the option of a Pass-Through Entity tax election. As of now, due to prior tax law changes, the state tax amount that is deductible at the federal level is limited to $10,000. However, with this election you can choose to pay your state taxes at the business entity level and that effectively makes your entire state tax bill deductible. You are circumventing the $10,000 limits. This is especially effective in high tax states like CA, NY, or HI. You could potentially $30,000 or more in taxes depending on your income levels.

This strategy is not often talked about among financial planners or tax professionals, so make sure you are working with a professional that can help you take advantage when it makes sense.


4. Cost Segregation and Bonus Depreciation

If you own commercial property or rental properties, cost segregation paired with current bonus depreciation rules can be a major tax-saver. This strategy involves identifying and accelerating the depreciation of certain components of a building, allowing you to take larger deductions upfront. With the current bonus depreciation rules, you can even write off up to 60% of qualifying assets in the year they’re purchased, which can create substantial tax savings by reducing your taxable income. This can apply to any real property your business owns.


5. Hiring Your Kids

If you have kids and run a business, hiring them can be an effective way to save on taxes. When you hire your children, their income is subject to lower tax rates, and if they’re under the standard deduction limit, they may pay no income tax at all. Plus, as long as they’re working on genuine tasks within the business, their wages are a deductible business expense, lowering your taxable income. It’s a great way to keep income within the family while giving them valuable work experience.
The income also makes them eligible to contribute to a Roth IRA for their future or you could pay them in bitcoin and use it as an opportunity to educate them while setting them up for future financial success.

6. 401k/Solo401k/Cash Balance Plan

Retirement savings plans like a 401(k) or Solo 401(k) provide excellent tax advantages. For small business owners or self-employed individuals, contributing to these plans allows you to defer taxes on retirement savings while reducing your current taxable income. Adding a cash balance plan can further increase your tax-deferred contributions, especially beneficial if you're aiming to maximize your retirement savings and reduce your tax burden each year.

7. QSBS

Qualified Small Business Stock. This allows you to exclude capital gains on up to $10M or 10x your investment whichever is great when you exit your business. Yes, you read that correctly. Potentially, multiple 7 figures in tax savings. Of course there are many qualifications you need to meet to be eligible, but it's worth looking into if you plan to exit your business after 5+ years.

8. Augusta Rule

Named after the city of Augusta, Georgia, where homeowners rent out their properties during the Masters Golf Tournament, the Augusta Rule allows you to rent out your home for up to 14 days per year without paying tax on the rental income. If your business pays you to use your home for meetings, filming, or special events, this strategy enables you to receive that income tax-free while allowing your business to deduct the expense.

9. Home Office Deduction

The home office deduction allows you to deduct expenses related to the portion of your home that is used exclusively and regularly for business. This could include a percentage of your mortgage interest, utilities, insurance, and even repairs. For those who qualify, the home office deduction can lower your taxable income by effectively turning a portion of personal expenses into business deductions.

10. Accountable Plan

An accountable plan is a reimbursement arrangement that allows you to reimburse employees (including yourself if you’re an owner-employee) for legitimate business expenses, such as travel, meals, and supplies, without counting those reimbursements as income. These expenses are tax-free to the employee and deductible to the business, making it a win-win for reducing both individual and business tax liabilities.

Conclusion

All in all, these strategies exclusive to business owners, could save you $100k+ within one tax year. That could help you stack 1 or more Bitcoin at current prices.

If you’re a bitcoiner and a business owner interested in eliminating unnecessary IRS donations, schedule a call with us to see if we could help you.

We are bitcoin financial planners working exclusively with bitcoiners to bring them the best of tradfi, blended with bitcoin expertise to provide them the best of both worlds. Don’t settle for a financial planner that doesn’t understand bitcoin, your family deserves better.
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