Effective Tax Planning Strategies

Tax Planning Strategies for Companies

Tax planning for companies is an important element and must be done carefully. Here are some helpful tips that provide long-term benefits to your tax savings.

Determine Your Company’s Structure

When you start a business, one of the first major decisions is determining your company’s corporate structure. The choice you make plays a significant role in your tax rates. Some of the structures you can pick from include:

• Sole proprietorship
• Partnership
• Limited liability company (LLC)
• Corporation
• S Corp

The ideal structure for your business depends on a variety of factors. Your preferred level of control, who you’re running operations with, and your projected trajectory help determine the one that’s right for you. When it comes to taxes, your selection plays a role in when your deadline is and whether you qualify for pass-through taxation or double taxation.

Utilize Depreciation

Depreciation enables business owners to reduce their taxable income by recovering capital expenditures. Some of the depreciation methods that apply to companies include:

• Asset depreciation: Charting an asset’s decrease in value allows you to reduce the amount of taxes you pay.
• Credits: Many constructed assets feature credits that allow business owners to reduce how much they pay in taxes.
• Cost segregation: A cost segregation study provides key insight into the separate assets in your building that you can depreciate over a certain amount of time.

Practice Good Recordkeeping

Filing an accurate tax return requires careful recordkeeping of your company’s expenses and revenue. This is an ongoing practice that should be done throughout the year and includes organizing the following elements:

• Receipts
• Bank statements
• Financial statements
• General ledger
• Invoices
• Credit card bills

Transitioning your organizational method from file folders to an electronic strategy is an efficient way of streamlining processes and simplifying tasks.

Defer Taxable Income

Deferring taxable income is a helpful strategy for businesses that utilize cash-basis accounting and involves waiting to receive revenue until the following year. An example of this would be completing a project in November, but waiting until January to collect payment.

Leverage Tax Deductions and Credits

Tax deductions and credits exist so businesses can reduce their tax burden and keep more of their hard-earned money. Take time to study the various deductions for companies and see if you qualify for any of them. Some of the more commonly used include:

• Employer-provided child care tax credit
• Work opportunity tax credit
• Small employer health insurance tax credit
• Business mileage tax deduction
• Business loan interest tax deduction
• Home office tax deduction

Partnering with an experienced tax planner helps verify you’re maximizing the number of deductions and credits available.

Utilize Charitable Donations

Making contributions to qualified organizations helps maximize your tax savings. These can come in a wide variety of forms, including:

• Cash donations
• Stock donations
• Traditional IRA contributions
• Donor-advised funds
• Giving to private foundations
• Creating charitable remainder trusts

The timing of the donation, how much you give, and the type of asset being contributed all play a significant role in reducing your liability.

Review Retirement Plans

Retirement plans are an effective strategy for reducing your tax burden and allowing you to save for the future. Fully funding your retirement accounts allow you to minimize the amount you pay on taxes. Small business owners can also take advantage of defined benefits plans or cash balance plans to increase savings.