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9 Tax Planning Strategies to Minimize Tax Liability 

By January 15, 2024Tax Advice
Planning taxes for small business minimize tax liability

Business owners typically have significant goals to achieve each year, beyond the essential goal of simply surviving. Those goals can include hiring high-potential employees, preventing employee burnout, retaining employees, improving productivity, cutting costs, improving customer service, strengthening marketing effectiveness, finding financing opportunities, growing the business, and increasing profitability. The ultimate goal is to pay for all costs and make a profit. Making a profit is impacted by strategies to minimize tax liability. 

Why Businesses Should Minimize Tax Liability 

Business tax liability is simply the amount of tax that is owed to the IRS, state, or local government for a given taxable year. For a small business, it can easily be said that every penny counts, so the effort to minimize tax liability can result in a business keeping an additional portion of its profits which it can retain, distribute, or reinvest. 

Every small business relies on cash flow to pay its day-to-day expenses. Thus, tax payments can impact the amount of cash flow necessary to “keep the lights on” and operate successfully. Interestingly, tax compliance costs are higher for small businesses than for big businesses. 

What is Tax Planning 

Tax planning is the deliberate effort to ensure that a business can minimize tax liability to save as much of its profits as legally possible. Tax planning requires knowing all forms of tax that a business must pay. It requires a solid understanding of tax deductions and tax credits that may be available. Strategies can be successfully used to advantageously plan purchases, large asset acquisitions, plan an expansion, and make daily business decisions. 

9 Tax Planning Strategies to Minimize Tax Liability 

Consider these tax planning strategies to minimize tax liability: 

  1. Ensure that you have the business structure that is most appropriate for your business. Your business structure will directly impact how you file taxes for your small business. If your business structure is incorrect or if you have outgrown your existing business structure, you may be able to change it. 
  2. Take advantage of all business tax deductions. Those can include expenses and mileage for personal vehicles used for business purposes, cell phone bills for phones that are primarily used for business, a percentage of certain business meal and entertainment expenses, costs to purchase business equipment including computers, printers, monitors, phones, and other business machinery, and the costs of bank fees and credit card processing. 
  3. Leverage all available tax credits. Those include the Work Opportunity Tax Credit (WOTC), Disabled Access Credit, and credit for small employer health insurance premiums. Additionally, many states offer tax credits that are designed to incentivize business investment and economic growth. Those can include credits for increasing employment, using local resources, or operating in underdeveloped areas. 
  4. If your small business is using the cash method of accounting, you can defer or accelerate income to be in the year when you will pay taxes at a lower rate. 
  5. Account for all the investments your business makes in your employees. Tax deductions generally apply for ordinary and necessary salaries, wages, bonuses, and other compensation. And you can deduct the cost of employee health insurance. 
  6. Set up or contribute to an employee retirement account. Depending on the type of retirement account that you set up, you may be able to deduct contributions to the plan and qualify for retirement plan startup costs tax credit. 
  7. Carefully consider deducting business charitable contributions. Those generally require receiving a business benefit in exchange for the contribution. 
  8. Write off bad debts and pay down your debts. 
  9. Make smart and well-timed purchases and investments and be proactive about depreciation schedules.  

To get all the benefits that come to businesses that minimize tax liability, it is wise to secure professional accounting assistance. 

Seek Professional Accounting Assistance 

Contact Orcutt & Co., based in Milford, OH. We deliver comprehensive financial management for small business owners & individuals, providing strategic solutions that best address client needs and aspirations. Our comprehensive accounting services keep you organized and give you the data you need to make prudent business decisions including bookkeeping, payroll, and tax.