Slash Taxes, Boost Retirement: Business Owner Guide for IRAs

When Sarah launched her design business, she wasn’t just chasing income; she was chasing freedom. The freedom to work with clients she loved, set her own hours, and build a life on her own terms.

But one evening, buried in invoices and end-of-month stress, she paused and asked herself a question too many entrepreneurs overlook: “What’s my plan for the future?”

That moment sparked a realization building a business is one thing. But protecting the freedom that business provides? That takes strategy.

At Make Taxes Fair, we know that running a business is about more than just today’s profits. It’s about using every legal tool available to lock in tomorrow’s freedom. One of the simplest and most powerful  tools for doing that is the Individual Retirement Account, or IRA.

IRAs don’t just help you save for retirement. They help you keep more of your money now, build lasting wealth, and stay ahead of the IRS all without needing a Wall Street advisor or financial degree.

Let’s dive into how IRAs work, how they save you money, and why every business owner should consider one. Because friends don’t let friends overpay the government and the right IRA strategy can help you win both today and tomorrow.

What Is an IRA? Foundational Education

When you hear "IRA," you might think it's something complicated something only big corporations or financial advisors deal with.

But the truth?

An IRA is one of the simplest, most powerful financial tools available to everyday business owners like you. At its core, an IRA (Individual Retirement Account) is just a special type of savings account but with a huge twist:

It gives you major tax advantages for setting aside money for your future.

There are two main types of IRAs:

Why It Matters for Business Owners

• Immediate wins: Lower your taxable income this year by contributing to a Traditional IRA.

• Long-term wins: Grow your investments tax-free and pull them out tax-free later with a Roth IRA.

• Flexible wealth building: Unlike employee-only retirement plans like 401(k)s, anyone with earned income, including sole proprietors, LLC owners, and S-Corp shareholders, can open and fund an IRA.

You don’t have to be a tax expert to benefit. You just have to take action and understand that this small, consistent move can create massive freedom later.

Because here’s the real truth:
The government wants you to save for retirement. That’s why they built IRAs into the tax code and why using them strategically can be one of your biggest tax (and wealth) opportunities.

How IRAs Save You Money on Taxes (Short and Long Term)

Here’s something every business owner should know:

IRAs don’t just help you save for "one day" they save you real money today and set you up for tax-free income tomorrow.

Let’s break it down simply:

Short-Term Tax Savings with a Traditional IRA

When you contribute money to a Traditional IRA, you can usually deduct that amount from your taxable income for the year.

Translation: You pay less in taxes right now.

Example:

• You make $100,000 this year.

• You contribute $6,500 to a Traditional IRA.

• The IRS only taxes you as if you earned $93,500.

Result: You just lowered your taxable income, and depending on your tax bracket, that could easily save you $1,300–$2,000 (or more) in taxes this year.

(And yes, you get this deduction even if you're self-employed.)

Long-Term Tax Savings with a Roth IRA

Now, let’s talk about the Roth IRA.

With a Roth, you don’t get a deduction today, but the money you put in grows tax-free, and you never pay taxes again when you pull it out in retirement.

Example:

• You invest $6,500 into a Roth IRA today.

• Over the next 25 years, it grows to $50,000.

• When you retire, you withdraw that $50,000, and pay zero taxes on it.

Result: You just created a tax-free retirement paycheck protected from future tax increases.

Bonus Tip:

Many business owners like to mix strategies using Traditional IRAs for upfront deductions some years (especially high-income years), and Roth IRAs for future tax-free income when expecting growth or tax hikes.

Smart retirement planning isn’t just about saving, it’s about tax positioning.
The earlier you start using these tools, the more you protect both your cash flow now and your financial freedom later.

• Short-Term Win: Lower this year’s taxes

• Long-Term Win: Build a future income stream the IRS can’t touch

Your Current vs. Future Tax Rate

Ask yourself:

• Am I in a high tax bracket now?
  → A Traditional IRA may make more sense. You’ll score a bigger tax deduction today when you need it most.

• Will I be in a higher tax bracket in the future?
  → A Roth IRA might be better. Pay taxes now at a lower rate and enjoy tax-free withdrawals when taxes might be higher later.

Strategic Tip: If you're early in your business journey and your income is lower, a Roth IRA can be an incredible long-term play.

Income Limits

 Traditional IRAs:

• Anyone with earned income can contribute.

• However, if you or your spouse have access to a workplace retirement plan (like a 401(k)), your ability to deduct the contribution might phase out at higher income levels.

 Roth IRAs:

• Income limits apply.

• For 2025 (based on projections), if you earn over $161,000 (single) or $240,000 (married filing jointly), your ability to contribute directly to a Roth IRA begins to phase out .

Solution: High earners can still access Roth benefits using a strategy called the Backdoor Roth IRA (we'll touch on this more later).

Your Business Structure

Your legal business structure also matters:

• Sole Proprietors, LLCs, and S-Corps, you’re eligible for IRAs just like W-2 employees.

• Sole Owners of S-Corps: Remember, your contributions come from your W-2 wages paid by the S-Corp, not your owner distributions.

Make sure you’re paying yourself a reasonable salary if you own an S-Corp to maximize contributions and deductions legally.

Your Age

• If you’re under 50, you can contribute up to $7,000 per year to an IRA (2025 limit).

• If you’re 50 or older, you get an extra $1,000 "catch-up" contribution, a great bonus for late starters.

These limits adjust every year and you want to be sure you are aware of those limits and how they changed recently.

Cash Flow and Flexibility

Some years are leaner. Some years are booming.

• If you need today's tax deduction to boost cash flow, Traditional IRA might be the right move.

• If you have strong cash flow and want to build tax-free wealth for the future, Roth IRA can be a powerful play.

Bottom Line:

The best IRA choice depends on where you are now, and where you want to go.

Remember: You can potentially open and fund an IRA even if you already have a business retirement plan like a SEP IRA or Solo 401(k). IRAs are one of the most flexible tools in your tax-saving toolbox.

Special Strategies for Business Owners: Beyond the Basics

Here’s the truth most business owners never hear from traditional CPAs:

When you run your own business, you have even more ways to turbocharge your retirement savings and lower your taxes all 100% legally.

It’s not just about Traditional and Roth IRAs. As a business owner, you can tap into special types of IRAs that allow you to contribute more and deduct more than regular employees.

Let’s break down the key options:

1. SEP IRA (Simplified Employee Pension)

If you’re self-employed or run a solo business with no employees, a SEP IRA can be one of the easiest and most powerful retirement plans available. You get to contribute far more than a Traditional or Roth IRA allows, and you can deduct those contributions directly from your business income.

But there’s a catch: If you have employees, you’re required to make contributions for them too, at the same percentage as you do for yourself. That means planning and budgeting are key if you want to use this strategy sustainable

Best for:

• Self-employed individuals

• Business owners with no employees 

How It Works:

• You contribute up to 25% of your net earnings from self-employment (after deducting half your self-employment taxes).

• Maximum contribution: $69,000 for 2025 (projected).

Tax Advantages:

• Contributions are tax-deductible to your business.

• Funds grow tax-deferred until you withdraw them in retirement.

Pro Tip: Even if you already have a Traditional or Roth IRA, you can also open a SEP IRA, maximizing your total tax savings.

BEWARE: The SEP IRA is the most “costly” of the IRA’s. By that we mean, if you have employees then you incur the cost of contributing to their SEP IRA. You have no choice when it comes to these contributions as the EMPLOYER is the one making the contribution to the plan. 

If you have an employee who makes $100,000 for example and you wish to contribute 25% of your net earnings to your SEP, then you are forced to make an identical percentage contribution to your employees SEP IRA account. This means you would have to make that contribution of $25,000. 

If you budget correctly and want to give your employees that additional bump in their total compensation package, that is just fine but it’s vitally important to understand the cost to you as an employer.

2. SIMPLE IRA (Savings Incentive Match Plan for Employees)

If you want something easier to manage than a 401(k), but still want to support your employees (and get deductions while you’re at it), a SIMPLE IRA is a fantastic middle-ground.

This plan works well for businesses with fewer than 100 employees and gives everyone including the owner the ability to save and reduce taxable income.

Best for:

• Business owners with fewer than 100 employees

• Entrepreneurs who want an easier, lower-cost retirement plan

How It Works:

• Employees (and you) can contribute salary deferrals.

• As the employer, you must either:

  • Match employee contributions up to 3% of their pay, OR

  • Make a fixed 2% contribution to every eligible employee (even if they don’t contribute).

Contribution Limits (2025):

• Up to $16,500 for employees under 50.

• Add an extra $3,500 catch-up if you’re 50 or older.

Tax Advantages:

• Your contributions are deductible.

• Employee deferrals lower their taxable income it’s a win-win.

3. Combining IRA Strategies

Here’s where business owners can really win: combining different IRA strategies to create a layered, high-impact plan. You don’t have to pick just one tool, you can often stack multiple accounts (within the IRS rules) to cover short-term tax savings and long-term retirement goals.

Imagine using your business to fund a SEP IRA for a big tax deduction, and contributing to a Roth IRA personally for tax-free income later. That kind of flexibility gives you the best of both worlds.

Example:

• Contribute to a SEP IRA through your business (maximizing business deductions).

• Also contribute to a Roth IRA personally (building future tax-free income).

This layering approach can maximize both your short-term tax savings and long-term wealth growth.

Short-Term: Slash this year’s tax bill.
Long-Term: Build a bigger nest egg that the IRS can’t touch.

This combo is ideal for high-income years or business owners playing the long game with both deductions and wealth growth.

Important Compliance Tips for Business Owners

These advanced IRA strategies are legal and powerful but only if you follow the rules. Keep things organized, meet your deadlines, and treat compliance like a safety net, not a chore. Doing it right protects you from penalties and keeps your audit risk low.

• Set up your SEP or SIMPLE IRA before tax filing deadlines (including extensions).

• Make contributions consistently and document them properly.

• If you have employees, follow nondiscrimination rules carefully (especially with SEP IRAs).

Audit protection starts with good planning and organized documentation, both pillars of the CLEAR EDGE Framework​.

Audit Protection: Best Practices When Using an IRA

Here’s the truth: The IRS isn’t out to get you for using legal tax strategies. In fact, they’ve already approved them. IRAs are powerful tools because they’re part of the tax code. But just like any tool, they only work in your favor when you use them correctly.

Following the rules not only keeps you compliant it also protects you from penalties and audits. If you want to keep your money safe and your stress low, there are just a few best practices to lock into your routine.

1. Keep Clean, Simple Documentation

Documentation is your shield. It doesn’t need to be complicated it just needs to be accurate. Whether you’re making IRA contributions monthly or once a year, you want a paper trail that proves exactly what you did.

If the IRS ever asks, you’ll be ready to show how much you contributed, when, and to which type of account. This is especially important if you’re claiming deductions for Traditional IRAs or doing any kind of Roth conversion.

What to keep on file:

• IRA account statements (monthly or annual)

• Deposit receipts or transfer confirmations

• IRS Form 5498 (shows your total contributions each year)

2. Know and Respect Contribution Limits

Every year, the IRS sets a cap on how much you can contribute to your IRAs. Exceeding that limit can cost you a 6% penalty each year until it’s fixed. That adds up fast.

The good news? Staying within the limits is easy if you’re paying attention. And if you ever go over, just correct it before the tax deadline.

2025 IRA limits:

• $7,000 if you're under 50

• $8,000 if you're 50 or older

Avoid penalties by:

• Double-checking total contributions across all your IRAs

• Correcting excess contributions before the filing deadline

3. Handle Roth Conversions the Right Way

If you’re a high earner using the Backdoor Roth IRA strategy (a powerful move, by the way), it’s crucial that you document and report it properly.

That means filing IRS Form 8606 to record both the non-deductible Traditional IRA contribution and the conversion to Roth. Miss that step, and you could get double-taxed on the same money a totally avoidable mistake.

Backdoor Roth checklist:

• File IRS Form 8606 every year you convert

• Keep records of both the contribution and conversion

• Track any gains before conversion (you’ll pay tax on those)

4. Don’t Miss Your RMDs (If You’re 73 or Older)

Required Minimum Distributions (RMDs) are withdrawals the IRS requires you to take from your Traditional IRA starting at age 73. Skip one even by accident and you could face a steep 25% penalty on the amount you should have taken.

Thankfully, this is one of the easiest rules to automate. Just set a reminder or work with your IRA custodian to auto-distribute the amount each year.

Stay RMD-compliant by:

• Starting withdrawals by age 73

• Automating annual RMDs through your brokerage

• Reviewing amounts each year they change based on your balance and age

5. Avoid Prohibited Transactions (AKA the Deal-Breakers)

There are a few things the IRS flat-out bans when it comes to IRAs mainly because they blur the line between personal benefit and retirement savings. These actions can blow up your IRA’s tax-advantaged status and make the whole account immediately taxable. Not worth it.

Never do the following with your IRA:

• Borrow money from it

• Use it to buy personal assets (like a second home or car)

• Sell anything you personally own to your IRA

When in doubt, ask a strategist before you transact. Prevention beats repair every time.

6. Don’t Go It Alone, Work With a Strategic Tax Pro

Most CPAs are focused on filing taxes not planning them. That’s why many business owners unknowingly miss out on legal tax-saving strategies like IRAs. If you want your IRA strategy to work seamlessly with your business and personal goals, find a proactive partner.

At Make Taxes Fair, we teach entrepreneurs to work with true strategists not "happy historians" who just report what already happened.

Your strategist should:

• Understand small business and retirement planning

• Guide you in choosing and documenting the right IRA strategies

• Help integrate your IRA with other tax-saving tools (like SEP IRAs, 401(k)s, or an Accountable Plan)

 Audit Protection Summary:

Real-World Case Study: How One Business Owner Turned an IRA Into a Tax-Saving Machine

Meet Jason.

Jason owns a small but growing HVAC company. He’s 42 years old, works hard, and finally started pulling in six figures after years of grind. But like most business owners, Jason had a problem:

He was getting crushed by taxes, and had zero retirement savings.

Jason had always thought IRAs were “just for employees with corporate jobs.”
No one had ever explained how powerful these tools could be for entrepreneurs like him.

Until he found the right tax strategist.

The Game Plan:

Jason’s CLEAR EDGE Strategy looked like this:

1. Open a Traditional IRA to lower his taxable income.

2. Fund a SIMPLE IRA through his business to supercharge savings.

3. Plan a future Backdoor Roth Conversion to protect against rising tax rates.

Year One Results:

 Traditional IRA Contribution:

• Jason contributed $7,000.

• Because of this move, he shaved $2,100 off his tax bill (assuming a 30% tax rate).

 SIMPLE IRA Contribution:

• Jason contributed $15,000 from his business profits.

• This lowered his business’s taxable income and saved him another $4,500 in taxes.

 Total Immediate Tax Savings: $6,600 saved, just by shifting money he was already earning into the right accounts.

Better yet: That money now grows tax-deferred inside his accounts, potentially doubling or tripling over time, while Jason keeps investing back into his business without overpaying Uncle Sam.

The Bigger Picture:

If Jason repeats this basic strategy every year:

• He could easily build $1,000,000+ in retirement savings over the next 20–25 years.

• Most importantly, he’d do it while keeping tens of thousands of dollars out of the IRS’s hands and growing his own future freedom instead.

Common Mistakes to Avoid with IRAs

IRAs are one of the most powerful tools for lowering your taxes and building wealth but only if you avoid the hidden traps. These aren’t complex errors they’re small oversights that can lead to big penalties, missed deductions, or extra paperwork headaches.

Let’s make sure you stay on the offense and avoid the six most common mistakes that trip up business owners and investors alike.

1. Missing the Contribution Deadline

Each year, the IRS gives you a deadline to contribute to your IRA for the previous tax year. If you miss it, you lose the opportunity for that year forever. And extending your tax return does not automatically extend your IRA deadline (unless it’s a SEP IRA).

Many people assume they have until October if they file for an extension. Not true for Traditional or Roth IRAs those must be funded by Tax Day (usually April 15).

Avoid this by:

• Marking your calendar for April 15, 2026 (for 2025 contributions)

• Knowing that SEP IRAs have more flexibility if you extend your business return

• Funding your IRA early to reduce stress and maximize growth time

2. Exceeding the Contribution Limits

Every IRA comes with a limit on how much you can put in each year. Go over that amount even by accident and you could face a 6% penalty every year the excess sits in your account. That’s a costly mistake that’s easy to avoid.

It’s especially common if you have multiple IRAs and lose track of the combined limit.

2025 contribution limits:

• $7,000 if you're under 50

• $8,000 if you're 50 or older

Avoid this by:

• Adding up contributions across all IRA accounts

• Fixing any overages before Tax Day to avoid penalties

• Using a tracking sheet or financial app to stay on top of limits

3. Ignoring Income Limits for Roth IRAs

Roth IRAs are amazing, but they come with income restrictions. If you make too much, you may not be eligible to contribute directly. Trying to do so anyway can result in excess contributions, tax notices, and messy corrections.

But there’s a workaround: it’s called the Backdoor Roth IRA, a legal strategy that lets high earners enjoy Roth benefits through a conversion.

2025 Roth phase-out starts at:

• $161,000 for single filers

• $240,000 for married filing jointly

Avoid this by:

• Checking your adjusted gross income (AGI) before contributing

• Using the Backdoor Roth strategy if you’re above the limits

• Always filing Form 8606 when doing a Roth conversion

4. Forgetting to Take RMDs (After Age 73)

If you own a Traditional IRA and turn 73, the IRS requires you to start taking Required Minimum Distributions (RMDs) each year. Miss one, and you could owe a painful 25% penalty on the amount you should have withdrawn.

This isn’t about withdrawing early, it’s about not withdrawing late. That’s why it’s smart to automate your RMDs through your financial institution.

Avoid this by:

• Starting RMDs the year you turn 73

• Setting up auto-withdrawals with your brokerage

• Talking with a strategist to avoid penalties or timing issues

5. Skipping IRS Form 8606 for Non-Deductible or Backdoor Contributions

Form 8606 is one of the most commonly missed and most important, IRA documents. It tracks non-deductible contributions and Roth conversions. If you don’t file it, you could end up getting taxed twice on the same money.

This mistake doesn’t cause an audit but it quietly costs people thousands in overpaid taxes.

Avoid this by:

• Filing Form 8606 every time you:

  • Make a non-deductible Traditional IRA contribution

  • Do a Backdoor Roth conversion

• Keeping copies with your tax records for future years

6. Taking Early Withdrawals Without a Strategy

IRAs are built for the long game. When you pull money out before age 59½, you’ll likely owe:

1. Regular income tax on the withdrawal

2. An additional 10% early withdrawal penalty

This can wipe out years of growth and seriously disrupt your retirement planning.

Avoid this by:

• Only withdrawing early for emergencies or IRS-approved reasons

• Exploring other options first (like 401(k) loans or HELOCs)

• Working with a tax pro before taking any early distribution

 Summary, Smart IRA Management Means:

Action Steps for Business Owners: How to Get Started With an IRA Today

Knowledge is power, but action is what creates results. The good news? Getting started with an IRA isn’t hard it just takes a little intention. Whether you're saving $100 or $10,000, the steps are the same. And every step moves you closer to keeping more of your money and building real freedom.

Let’s walk through how to set up and use an IRA like a strategic, tax-smart business owner.

Step 1: Know Where You Stand (Your Financial Starting Point)

Before you open an account or make any contributions, take a quick snapshot of your financial life. This isn't about perfection it’s about clarity. The goal is to understand where you are so you can make smart decisions that match your situation.

Are you just starting your business or hitting your first six-figure year? Do you expect your income to rise or stay steady? These answers help determine whether you want a tax break now (Traditional IRA) or tax-free income later (Roth IRA).

Ask yourself:

• What was my total income last year? (A ballpark is fine.)

• Do I expect to make more, less, or about the same this year?

• Do I already have any retirement accounts set up?

• Am I planning to hire or already have employees?

Step 2: Choose the Right IRA Strategy for You

Once you know where you are, you can pick the IRA strategy that fits like a glove. Every business owner's situation is different, so this step is about alignment, not perfection. You don’t need to get it 100% right from day one. You just need to get started.

If your income is lower now (like in your startup phase), Roth IRAs give you tax-free growth forever. If this is a high-income year, Traditional IRAs can help you lower your current tax bill. And if you want to contribute more or support your employees, look into SEP or SIMPLE IRAs through your business.

Based on your situation:

• Lower-income year: Roth IRA = pay taxes now, grow money tax-free.

• High-income year: Traditional IRA = reduce taxable income now.

• Hiring employees? Consider SEP or SIMPLE IRA plans to save more and offer benefits.

• Want maximum flexibility? You can often combine a Roth + SEP/SIMPLE IRA.

Step 3: Open the Account (It’s Easier Than You Think)

You don’t need to go to a bank or hire a financial advisor to open an IRA. It’s as easy as shopping online. Just choose a trusted brokerage (Fidelity, Schwab, Vanguard, etc.), fill out a quick application, and you’re ready to fund your account.

When choosing an account, think about whether you want to open it personally (Roth or Traditional IRA) or through your business (SEP or SIMPLE IRA). Then, set up automatic contributions even small ones. That’s where the magic of compound growth begins.

To do:

• Pick a reputable brokerage (Fidelity, Vanguard, Charles Schwab, etc.)

• Choose your account type: Traditional IRA, Roth IRA, SEP IRA, SIMPLE IRA

• Set up auto-contributions (monthly is ideal even $100/month adds up fast)

Step 4: Make Your Contributions and Beat the Deadlines

The IRS gives you a deadline to make contributions for each tax year and if you miss it, the opportunity is gone forever. That’s why it’s smart to fund your IRA as early as possible. You don’t need to max it out on day one. Just start.

Also, know the deadlines are different depending on the type of IRA. Traditional and Roth IRAs follow the personal tax filing deadline (usually April 15). SEP IRAs can be funded later if you extend your business return.

Important reminders:

• 2025 contributions for IRAs: Deadline = April 15, 2026

• SEP IRAs: Can be funded later if you file a business extension

• Pro Tip: Fund early, your money gets more time to grow tax-deferred or tax-free

Step 5: Keep Your Records Clean and Clear

Tax savings only stick if your paperwork backs it up. That’s why documentation is key. Thankfully, most brokerages automatically issue the right IRS forms. But you still need to save them and track your contributions, especially if you do things like a Backdoor Roth conversion.

Set a calendar reminder to check limits each year and keep a folder (digital or paper) with all your IRA records. This is also a good time to loop in your tax strategist to make sure your IRA fits smoothly into your bigger tax plan.

Documentation checklist:

• Keep records of contributions (bank transfers, statements)

• Save IRS Form 5498 (sent by brokerage end of year)

• If using a Backdoor Roth, file IRS Form 8606

• Track annual contribution limits and income thresholds

Step 6: Celebrate Every Contribution Big or Small

You did it. You took action to keep more of your money and protect your future. Don’t gloss over that win celebrate it. Every contribution, no matter the size, is a step toward financial independence and a vote against overpaying the IRS.

Treat each dollar you put in like a soldier working for your future freedom, not Washington’s waste. And let that momentum build.

Each contribution is:

• A tax-saving move that puts you in control

• A step toward a retirement where you call the shots

• Proof that you're building wealth the smart, legal, and ethical way

Conclusion: Your Freedom Starts Today

Here’s the big truth that most business owners miss:

Retirement isn’t something that “just happens” when you get older.
Retirement is something you build one smart move at a time.

Opening and funding an IRA isn’t about complexity.
It’s about control.

Control over your money. Control over your future. Control over how much you give (or don’t give) to the government.

By taking action now, even with small, consistent steps, you’re choosing to protect your profits, maximize your freedom, and build real, lasting wealth that no one can take from you.

And you’re doing it legally, ethically, and strategically the way the tax code intended.

At Make Taxes Fair, we believe that with the right systems like IRAs and the CLEAR EDGE Framework you can reduce your taxes by 30%–50% or more without fear of audits, and grow the future you've always dreamed about.

Ready to Take Control? Here’s Your Next Step:

•  Open your IRA today.

•  Fund it consistently.

•  Keep your documentation clean.

•  Work with a strategist who cares about your goals as much as you do.

Because freedom isn’t given, it’s earned, protected, and planned for.

And your journey to financial independence starts right now.

If you have any questions, reach out and start a conversation.