What’s your tax strategy?

Your business is likely organized as an LLC but is it taxed as an “S” Corp, a “C” Corp, a partnership or as a sole proprietorship? The tax code generally allows an LLC to elect any of these options and there are important tax implications that underlie that selection. Making the wrong selection can cost your businesses thousands of dollars each year.

Consistent application of the most advantageous accounting methods results in the minimization of taxable income reported. Significant methods which need consideration include:

• Cash vs. accrual
• Inventory capitalization
• Accounting for long-term contracts
• Accounting for bad debt

Business owners that effectively use retirement plans to save for retirement on a pre-tax basis achieve greater levels of employee retention, asset diversification, greater liquidity and wealth accumulation. Retirement plans range from simple to very complex and include the following:

• Simple IRA
• Simple 401(k)
• 401(k) with or without safe-harbor match
• SEP Plans
• SARSEP Plans
• Profit Sharing Plans
• Defined Benefit Plans
• Money Purchase Plans
• Employee Stock Ownership Plans

The right plan for your business will be driven by profitability, owner demographics and workforce demographics. Maximizing the ability to save on a pre-tax basis is a critical aspect of employee welfare and owner diversification and wealth accumulation.

In many industries (restaurants, bars, software development, temporary staffing, etc.) tax incentives are the single most important part of an overall tax strategy.

Federal, state and local governments all utilize some form of tax credits or incentives to encourage economic development. Incentives are driven by employment, innovation, training and capital investment. Understanding the incentives offered in the jurisdictions where you do business and the required timing of application is critical to maximizing these benefits.

The decisions you make today about how to structure your business impact your ability to exit the business in a tax efficient manner. There are very different considerations for fast growing businesses that expect an exit within 5 years than those associated with more traditional family businesses that will be passed from one generation to the next. Whether you plan to sell your business to a third party or simply plan to close the doors when you wrap up operations you should take those plans into consideration in your tax strategy today.

The one constant in life and business is change. Things don’t always work out the way you planned. Your tax strategy should be reviewed no less than annually to account for any changes in your business or the environment it operates within. Your tax professional should be updating the plan annually based on these changes and the changes in the tax law.