Business-Minded Legal Solutions

Tax planning strategies for your business

Business owners can potentially access significant tax savings with careful planning and due diligence. As the end of the year approaches, take advantage of these tips for potential 2019 savings and implement new ideas to save in 2020. 

These are the most common strategies medium-sized and large businesses can use to legally reduce their tax burden. 

Choosing the right business entity 

Some businesses that currently pay taxes as pass-through entities, including partnerships, LLCs and S corps, may be able to save by converting to a C corporation. The Tax Cuts and Jobs Act decreased the tax rate for C corps to 21% from the previous rate of 35%. In contrast, some pass-through entities may pay up to 37% taxes depending on the company owner’s individual tax bracket. However, keep in mind that if you do not reinvest profits into your business, they are subject to double taxation at the individual level when distributed to shareholders. 

Prepaying major expenses 

If you need a way to save on 2019 business taxes, consider paying significant costs that would otherwise carry over to 2020. Examples of these business expenses include: 

  • Rent or mortgage on your business location 
  • Subscriptions to professional journals, periodicals and other memberships 
  • Liability insurance and other insurance policies, such as business auto or malpractice 
  • Inventory and supplies 
  • Equipment purchases of up to $18,000  
  • Real property improvements of up to $1 million, including renovations, security systems, alarm systems, HVAC systems, new roofs, new windows and other updates   

Creating a retirement plan 

Establishing certain employee retirement plans can significantly reduce your tax burden while contributing to employee loyalty and morale. Common examples include a defined contribution plan such as profit-sharing or 401(k), defined benefit plans, simplified employee pensions and cash balance plans. 

These ideas are just the tip of the iceberg when it comes to business tax savings. For best results, consult with a professional who has extensive knowledge of and experience with the current tax code.