However, business tax strategies provide a way for organizations to stay ahead of the curve and mitigate potential tax-related roadblocks. In this blog, we’ll cover a high-level overview of business tax planning strategies.
Having a plan of action to help minimize the amount of taxes that a business pays sounds good, right? That’s exactly what a tax strategy is—it identifies methods to help lower taxable income, increase deductions, and leverage tax credits to their fullest. An effective tax strategy takes into account a wide range of variables, including current tax regulations and an organization’s short- and long-term financial objectives.
An excellent yet simple method to reduce your organization’s taxes is to capitalize on capturing large purchase expenses before year-end. By buying equipment, furniture, or supplies for the business in the current tax year, you can claim the expenses on this year's tax return, effectively reducing your taxable income. This is a common practice for businesses and is an easy way to enhance your tax strategy.
Deferring income is a very basic strategy. By deferring income, taxes on that income will not be paid until the next year. For example, a business can delay sending invoices until the first quarter of the following year. This strategy often goes hand-in-hand with expense shifting.
At first glance, depreciation might not sound positive, but business-savvy operators understand the leverage that depreciation can provide. Here’s how it works from a high level:
Before 2023, the deduction used to be 100% of qualified property. The federal government implemented a new regulation that dropped it to 80% (after 2023).
Business tax planning strategies can save your business a lot of money in the long run. By deferring income, capturing expenses, and taking advantage of tax credits and deductions, you can lower your business' taxable income and reduce your taxes.
Many of these examples also apply to tax strategies for high-income earners, and these are just a sampling of common business tax strategies. Many more methods to maximizing tax savings as a business exist—we recommend reaching out to an experienced advisory firm to explore how your organization can optimize its tax strategy.