For business clients there are few expenses that are of more concern to the management and/or ownership than the companies tax burden. Really the largest 2 expenses of most companies are usually payroll and taxes. While there are many provisions of the tax code that you as a business owner can take advantage of to reduce your overall liability, we think that the first place to start is these three top tax strategies: 1. Entity Selection, 2. Retirement Plan Options, and 3. Timely Financial Information.
The first strategy is really decided early in the organizations life cycle, but may be revisited at different intervals over time to make sure the current structure makes sense. Having and analysis done as to what entity would create the most beneficial tax situation while making the most sense for the growth and expansion of the company is vital. Having the wrong entity structure could reduce your ability to grow and cause your earnings to be reduced by unnecessary taxes. The entity structure decision is not made based on tax consequences alone. There are several business, legal and financing questions that have to be answered before making the decision to choose which entity type would be best for you. Also note that, there are state entity designations and IRS/federal entity designations. For example, you can file organizational documents to create a Limited Liability Company (LLC), which by default will be taxed for federal purposes as a partnership. There is an election, however, that may be made to choose to be taxed as a corporation for federal tax purposes. Each federal tax classification has its own reporting requirements and tax consequences. Some of the state designations are: LLC, Limited Partnerships (Ltd), Limited Liability Partnerships (LLP's), Corporations, and Professional Associations (this list isn't all inclusive). Some of the Federal tax classifications are Sole Proprietorship (Disregarded Entity - any entity that is not separate for tax purposes from its ownership), Partnership, Corporation, S-Corporation and Trust (this list are the most common of entities from which a trade or business may operate).
The second strategy, linked to the first mentioned above, is the Retirement plan options for the owner/operator of the small business. The entity you choose will limit the scope of the options and potential annual contribution amounts that you may set aside for retirement and receive a deduction against your federal income tax. The retirement plan for the small business accomplishes several things; first it saves for the inevitable event of retirement, when the business owner can or no longer wants to work. Second it provides a potentially significant deduction against the business owner's tax liability. In addition, a properly selected retirement plan could provide benefits to key employees that will keep them happy or attract key employees.
Finally, the last strategy that we will address (there really are countless strategies available) is that of Timely Financial Information. Here I am referring to having the information you need to make timely decisions regarding your tax liability or how to structure a transaction so as to reduce your overall tax liability. After the fact is never a good strategy. This could be applied to having real time accounting information or just calling your tax professional before a transaction rather than after. After it happens, there is not much an advisor can do but play the part of historian and report it properly on your tax return. If you only have a tax preparation only relationship with us or someone else, then you may be hindering this or any of the other strategies mentioned from working for you. Check out the upgrade opportunities in the service levels we provide. We would love to help you.