Preface: Reducing and deferring tax is strategy. Here are some strategies you might, and might not, give frequent thought.

 

2015 Small Business Tax Strategies

Taxes are simply a cost of doing business. Yet, like all costs, you can manage it to your advantage. If you’ve read this far, you are an entrepreneur who appreciates the time planning the tax effect of your income. Maybe planning tax strategy is new to you. Whether it is or not, the strategies are similar year to year — deferring revenue, accelerating expenses, contributing to a retirement account, making charitable contributions, or maximizing depreciation expense. You would be well advised to adhere to only legal tax reduction strategies. Any other path is fraught with risk and even forfeiture of business value. Other legal loopholes include domestic productions activities deductions for manufacturers or specific tax credits applicable to your industry.

Employee bonuses are a great strategy to reduce taxes, and reinvest in your businesses workforce. A well- compensated team will take satisfaction in their work and minimize hidden business liabilities, namely employee inefficiencies. There are though so many more ways to plan for taxes.

Investing in marketing and advertising is another strategy for deferring a business’s tax liability. Advertising and marketing is one of the most efficient methods to defer taxes from one year to the next, or in perpetuity. An advertising campaign will help you develop your market position, and defer revenue to the following period(s). With the increased top line revenue from advertising, you can increase the value of your business over time too.

Successful tax planning should incorporate the vision of the business. For instance does it make financial sense to purchase $150,000 of equipment to solely save on taxes? You should calculated the process optimization of that new equipment and return on investment, i.e, will the new equipment reduce costs on manufacturing processes, will it provide a 7% internal rate of return. Spending cash to purchase necessary equipment, i.e. a truck, robotics, or office furniture, should result in additional future cash flow or necessary improvements. Otherwise paying the tax at say 40%, still put’s 60% net tax dollars in your bank account for new working capital.

Keep in mind that debt is repaid with income, net of tax, except the interest expense. So if you have a $150,000 line of credit, you will need to earn say $240,000 or more to repay that line of credit, without reducing working capital. Debt is leverage. If you have debt, you’re best advised to pay tax and resist spending excessively on fixed assets beyond what is required. With the excess cash you can accelerate the payment of debt, reduce business leverage, and increase equity (and value).

Retirement plans also defer tax. SIMPLE-IRA’s or SEP-IRA’s are an easy way for business owners to contribute towards retirement and save on taxes. SIMPLE-IRA’s permits up to $12,500 to be contributed and SEP-IRA’s up to $53,000 for 2015. The characteristics of the IRA plans may or may not make them conducive to your businesses tax planning.  Talk tax plans with a CPA or with a retirement advisor, if you have interest in this option, to determine what could work best for your tax planning in your business.

Sometimes saving on taxes isn’t everything you need to think about. Are you in compliance with Obamacare? Do you have appropriate labor law compliance? Nondeductible penalties are an expensive way to learn about the crucial area of compliance.

Selling your business? Businesses are often valued based upon cash flow and net income. The more net income (more tax paid,) often the more value at sale for the seller (you.) Why? Because of the business valuation cash flow and net income components. This is to say the more taxes paid (the higher the tax reported income on the tax return) the larger the gain at sale, because of the value multiple of earnings on the businesses net income. Don’t worry — there is an advantage to paying tax sometimes.

Summary: Your business tax planning is complex. Tax planning can be important and vital to reducing the cost of business. But saving tax dollars isn’t the only consideration. Working with a tax advisor who can adeptly help you mange your business. and plan before and after tax dollars, will reward you.