Creating a Board of Directors or Advisors is an underutilized strategy to help save you taxes. It is so easy to set up that you will kick yourself for not doing it earlier.
This guide will teach you the tax benefits and how you can set one up for yourself.
Adding Family Members to the Board
The purpose of your Board is to receive guidance, encouragement, and accountability as they check in on your goals. You are allowed to reasonably compensate your Board Members for these services, but it is not required.
That is why it could be smart to add your children to your Board. There are two big benefits to adding your children to your Board:
- You receive a tax deduction for paying your children money you were probably going to give them anyway
- Your children get to be involved and learn how to run a business
Deducting the Annual Meeting
When you set up a Board, you are now required to hold an annual meeting with your board members and document the minutes. The annual meeting provides a great opportunity to take a tax-deductible vacation.
It also provides another reason you should add your entire family, including your spouse, to your Board. If the whole family is on the Board, the airfare, hotels, and meals could all be deductible for the entire family.
Of course, there are some rules about how much you can deduct during your annual meeting. But if you would like to maximize the deductions of your annual meetings, check out our article on tax-deductible vacations.
How to Set Up Your Board
Setting up your Board is a straightforward process. You do not need to file anything with the IRS or the State. Also, you can set up your Board at any time.
If you already have an LLC or corporation, this is all you have to do to set up your Board:
- Pull out a piece of paper
- Hold a meeting
- Document the meeting as “Minutes”
- Appoint the names of the people on the Board
- Have the members sign the “Minutes” and agree to serve on the Board
Additionally, it is important to remember that the Board Members only provide advisory services to your company. They should not be making any actual decisions. If they begin to make any operating decisions for your company, they can be held liable in a lawsuit.
Asset Protection Benefits of the Board
The Board provides one more benefit outside of tax savings, and that benefit is asset protection. When you have a Board, you are required to hold annual meetings. Annual meetings help to substantiate the “corporate veil” of your LLC or C-corporation. If you are ever in a lawsuit, you will be able to pull out your minutes to show the court that you have properly maintained your entity, held regular meetings, and kept adequate records.
Conclusion
Creating a Board of Advisors or Directors is a very easy way to save on your taxes. Not only will you be able to receive tax deductions for paying your children, but you will also receive tax deductions for going on a vacation.
At Windstone Financial, we help small business owners mitigate their taxes. If you need help structuring your Board of Advisors or Directors, click the button below to speak with a CPA today!
