Tax Strategy for Businesses
The only things certain in life are death and taxes. But the amount of tax you have to pay can vary wildly, depending on the business choices you make. Tax laws are written with deductions specially designed to allow businesses to flourish without being overburdened by excessive taxation. Your challenge is to navigate the complex tax code with as much as possible of your profit intact.
If your business has an accountant, you probably feel confident that your taxes are prepared properly and you’re not paying the wrong amount of tax. That’s an excellent first step. The next is to plan your business strategically so that you will be liable for less tax when filing season rolls around. That kind of advance planning isn’t something a CPA generally offers. The best recommendations will come from your financial advisor.
What Can a Business Financial Advisor Do for Your Taxes?
A financial advisor is a professional who helps maximize the capital that goes into starting and running your business. They’ll have useful advice about:
- Tax requirements
- Spending and saving strategies
- Cash flow management
- Recommended accounts for operating your business
- Profit and loss analysis
All of this can help you keep more of your money in your business and lose less to Uncle Sam.
Managing Investments with a Smart Tax Strategy
If you’re not careful, an investment that seemed perfect can sour by resulting in a tax charge you weren’t expecting. Taxation can erode the initial gains generated by investment and hurt your overall personal income.
Your financial plan is interconnected and consists of both a tax minimization strategy and an investment strategy. A financial advisor helps you invest with tax implications in mind. They consider your potential tax burden when recognizing investment gains, selling property, and withdrawing from a 401(k) or traditional IRA. A professional will also keep you aware of strategies to reduce your overall tax burden, such as contributing to an HSA. They’ll advise you on applicable changes to laws or the implementation of new investments that offer tax efficiency and long-term gains.
Five strategies for tax minimization
Here are five strategies your financial advisor may use to create a long-term tax minimization plan that lasts throughout your retirement.
Deduct Health Insurance-Related Expenses
Small businesses can typically deduct a portion of their health insurance-related expenses. For example, as a business owner, you can usually:
- Deduct contributions to an HSA from small business taxes
- Deduct premiums from small business taxes
- Set aside tax-advantaged dollars to help employees buy coverage on their own
You’ll need to confirm that you’re eligible, but claiming the health care tax credit can result in savings.
This credit benefits small business owners with fewer than 25 full-time employees that pay an average salary of less than $50,000 per year. You must pay at least half of your employees’ health insurance premiums.
Deduct Section 179 Property
If eligible, you may deduct certain property—up to $500,000 worth.
You’re only able to deduct the full amount in the same year you began using the property for your business. For this reason, this deduction works well for companies that have recently moved or owners who have acquired new property used for manufacturing, transportation, research, or business.
Realize Charitable Contributions
You can claim charitable contributions as an individual or a business if given a donation to a charity. However, the organization must be qualified by the IRS. Churches automatically qualify, but other entities must apply to the IRS for charitable status.
If you’ve made any charitable contributions in the past year in your business’s name, your financial advisor will advise you to deduct them. Don’t forget that volunteer expenses and stocks can also be considered contributions.
If you own a corporation or S corporation, you can make charitable donations on your business income tax returns. If not, you’ll pay business taxes as a pass-through entity. Your business taxes are passed through to you as an owner, on your personal tax return. Your ability to claim charitable contributions is limited unless you gave above the standard deduction amount.
Watch for Miscellaneous Deductions
Did you know that ATM card fees for your business, out-of-town business travel, and other items bought to conduct your business can be tax deductions?
Most miscellaneous deductions are deductible as long as the amount you paid out of pocket exceeds 2% of your adjusted gross income. The only deductions exempt from the 2% rule are those for unrecovered investment in casualty and theft losses, annuity, federal estate tax on income, and gambling losses. Also exempt are impairment-related work expenses for those with disabilities, losses from activities from K-1 in box two, and losses from Ponzi investment schemes.
An excellent financial planner knows what to look for and will deduct the maximum available miscellaneous deductions that apply to your business.
Assuming Tax Credit for Child Care Expenses
You can receive a tax credit if your business pays for your employees’ child care expenses.
If you provide child care to your employees, Code Section 45F allows you to claim an employer-provided child care credit—part of the general business credit.
You’ll receive a credit of 25% of the expenses paid, up to $150,000 each year. This can be a better tax break than claiming your own child tax credit on your individual return.
Qualified child care expenditures include:
- Expenses for operating costs of a qualified child care facility
- Expenses paid to construct, rehabilitate, or expand a qualified child care facility that you will use, is not depreciable and is not your principal residence (or that of any of your employees)
Find a Financial Advisor Today
A financial advisor can help fit all of the pieces of your financial picture together with a tax strategy plan. They can help figure out which income sources to use and when, how additional sources of income may affect your tax burden, and how to help reduce taxes for your successors.
The difference between good and bad advice is in the data. Click here to schedule a phone call with one of our advisor concierges. We’ll match you with a financial advisor who knows how to strategically grow your business with an efficient tax strategy.