Services

Small Business Tax Planning

What is tax planning?

Small business tax planning involves carefully analyzing your financial situation, business structure, and applicable tax laws to develop a proactive tax strategy. By taking a proactive approach, you can legally minimize your small business tax burden and optimize your financial resources for growth and profitability.

Our experienced team at Midwest CPA specialize in serving small business owners with tailored solutions to meet your unique needs. We stay up-to-date with the ever-changing tax regulations and leverage our expertise to identify opportunities for tax savings.

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Business tax planning services

Small business tax planning is not a one time event. It is a year round effort that requires collaboration between both the tax professional and the client. 

That is why we have structured our small business tax planning services so that we will be right there with you year round so we can help you to understand, properly implement, and adjust your tax plan as needed.

What's included?

  • Detailed review of prior year return
  • Custom tax plan to maximize your savings
  • Implementation calls
  • Detailed success roadmap
  • Check-in calls
  • Email support
  • Quarterly tax projections

Who We Serve

Our process

1

Strategize


This step involves strategic tax planning, where our experts analyze your financial situation and small business structure to develop a personalized tax strategy that aligns with your goals and maximizes tax benefits. 

You’ll also have 2 strategic calls with an expert to talk through your specific goals and objectives.

2

Blueprint


In this step, we create a comprehensive tax blueprint based on the strategies developed in the first step. 

The blueprint serves as a roadmap for implementing the recommended tax-saving techniques and ensuring compliance with tax laws.

3

Execute


The final step is to execute the tax plan outlined in the blueprint. Our team will work with you to implement the recommended strategies, optimize deductions, leverage credits, and ensure that you take full advantage of available tax incentives. 

You’ll have quarterly check-ins with your expert and unlimited email support.

Small business tax reduction

When it comes to tax planning for your small business there are 3 broad methods that you can utilize.

  • Eliminate: Small business owners can make strategic decisions to completely eliminate significant portions of their tax obligations. By taking advantage of tax exemptions, credits, and deductions, businesses can legally minimize their tax liability, allowing them to retain more of their hard-earned profits.
  • Defer: Another effective tax planning strategy for small business owners is deferring taxes to future periods. By deferring tax payments through strategies like accelerating depreciation, utilizing retirement plans, reinvesting profits into the business, or delaying the recognition of income, businesses can benefit from the time value of money while maintaining cash flow for operational needs.
  • Reduce: Small business owners can employ various techniques to significantly reduce their various tax liabilities. Strategies such as selecting a proper entity structure, optimizing business expenses, and utilizing tax credits can greatly reduce your taxable income, ultimately resulting in significant tax savings.

5 tax planning strategies for small businesses

Being a small business owner gives you access to tax saving strategies that can save you thousands or even millions over your lifetime. Here are 5 tax strategies to consider to help make your business income as tax efficient as possible.

  • What is entity structure?

    Entity structure is a government classification that will determine your tax burden and your personal liability. As an owner of a small business you have five entity options available to you. 

    • Sole-Proprietor
    • Limited liability company 
    • Partnership
    • S-Corporation
    • C-Corporation

    Each structure will come with it’s own separate advantages and disadvantages from a small business tax planning perspective. You can download a free guide where we outline over 30 differences between the 5 entity types here. We’ve listed some of the key ones below.

    Reduce employment taxes

    As an employee you have to pay the employee portion of employment taxes to the IRS. As a business owner you need to pay both the employee and the employer portion of employment taxes to the IRS. This adds up to 15.3% in self employment taxes. 

    However, when your small business business reaches a certain size it can make sense to elect to be taxed as an S-Corporation. This allows you to pay yourself a reasonable salary that is subject to self employment taxes. However, the rest of your business income will not be subject to this tax.

    Corporate tax rate

    In some cases it may makes sense to elect to be taxed as a C-Corporation. The C-Corporation is the only entity structure that actually pays it’s own taxes. The rest pass-through to the owners of the business. 

    The benefit is that the C-Corporation has a tax rate that is only 21%. This may be much lower than the personal tax rates of the owners. However, the C-Corporation is subject to double taxation. This is because dividends from the corporation will be taxed again at the dividend tax rate when received by the shareholders.

    Taxes are the not the only consequence of the entity structure you select. However, when it come to small business tax planning their importance cannot be overstated. 

  • As a business owner you have the ability to make deductions from your taxable income that a traditional W-2 employee will not be able to.

    Obviously, there are some direct costs associated with running your business. However, there are many other expenses you are paying for whether you own a business or not. In some cases these expenses can be wholly or partially deductible. This gives you great power to be able to spend money pre-tax rather than post tax. Here are some of the most common expenses that fit into this category. 

    Home office

    When a specific area of your home is used exclusively and regularly for business purposes, you have the potential to deduct expenses related to that portion, including mortgage interest, insurance, utilities, repairs, and depreciation. It’s important to calculate the percentage of your home allocated to business activities in order to determine the eligible deductions for utilities, repairs, and depreciation.

    Continued education/membership dues

    When you actively participate in professional organizations related to your business or invest in skill-building activities necessary for running your business, you typically qualify for deductions from your small business income. These deductions are available for expenses incurred in maintaining or improving the skills relevant to your business operations.

    Travel

    To qualify for deductions, the travel must be necessary, ordinary, and primarily for business purposes. This can include expenses such as airfare, lodging, meals, transportation, and even conference or seminar fees, as long as they are directly related to the business and not of a personal nature.

    Phone

    Even if your phone is not used exclusively for business purposes you may be eligible to deduct a portion of your phone bill for tax purposes. 

  • Many small business owners and acquisition entrepreneurs have a goal of one day selling their business. 

    As the owner of the business you are not going to be subject to any tax on the growth of your business until you actually sell the company. For example, if you grow your company from a value of $1MM to a value of $1.5MM you do not pay any tax on the $500 of growth until you actually sell the company. This gives you the ability to potentially grow your net worth incredibly tax efficiently. 

    Further, should you decide the time has come where you are ready to sell your company there are many options available to you to either eliminate or greatly reduce the amount of tax you owe on the sale. 

    Qualified Small Business Stock (QSBS)

    The requirements for QSBS are:

    • Entity must be a domestic C-Corp
    • Gross assets of less than $50MM immediately after acquisition
    • Owner can’t be a corporation
    • Stock must be acquired at issuance
    • Must not operate in an excluded industry (Professional services, real estate, hospitality, fossil fuels, or any business that relies on the owner’s reputation)

    If you hold QSBS for at least 5 years you may have the ability to exclude from capital gains the greater of 

    • $10MM
    • 10X stock basis

    This alone could save you millions of dollars in taxes.

  • As a business owner you still have many options when it come to saving for retirement. The best part is as the owner of the business you get to choose the plan that best suits you and your needs.

    Here are some of the most popular options:

    Solo 401(k) (Individual 401(k))

    This plan is suitable for self-employed individuals with no employees, except possibly a spouse. It allows for higher contribution limits compared to other plans.

    SEP IRA (Simplified Employee Pension)

    A SEP IRA is easy to set up and maintain. It allows contributions up to 25% of net self-employment income, subject to some limitations. The contribution limit is based on a percentage of self-employment income and does not depend on profit levels.

    SIMPLE IRA (Savings Incentive Match Plan for Employees)

    This plan is suitable for self-employed individuals with few or no employees. It allows both employee and employer contributions. The employer can either match employee contributions or make a 2% non-elective contribution.

    Individual Retirement Account (IRA) 

    Self-employed individuals can contribute to a traditional or Roth IRA. Contributions to a traditional IRA may be tax-deductible, while Roth IRA contributions are made with after-tax dollars but offer tax-free withdrawals in retirement.

  • Real estate is one of the most powerful wealth building tools available to Americans. This is due to it’s strong historical performance and the incredible tax incentives available to real estate investors. 

    Here are a few of our favorite benefits of buying real estate as a small business owner. 

    Depreciation

    Depreciation is a non-cash expense to a property owner that compensates for the wear and tear of an asset over time. This allows a real estate investor to take a tax deduction without having to actually spend the cash. On top of this through cost-segregation studies you may have the ability to accelerate the depreciation even faster to maximize your deduction. 

    Interest and property tax deductions

    Another key incentive is the ability to deduct mortgage interest payments and property taxes as business expenses. This deduction can significantly reduce their taxable income and lower their overall tax liability.

    Section 199A

    In Revenue Procedure 2019-38 the IRS created a safe harbor that allows certain rental real estate to qualify as a trade or business for the purposes of the section 199A deduction. 
    This deduction may allow a non-corporate taxpayer to take a deduction of up to 20% of their qualified business income.

    Low or no tax on transfer

    When is comes to transferring ownership in real estate you are generally going to pay the capital gains rate on the appreciation of your property. This rate is generally lower than your ordinary income tax rate. 

    In addition, there are many other options that may allow you to defer, or eliminate taxes completely on the sale or transfer of ownership.

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Chris is an absolute top notch M&A financial due-diligence provider. He and I have worked on many, many deals together and not only has his advice and services been reliable, accurate and very actionable, but he has been very responsive to client needs and requests. I always am happy to send clients over to Chris because I know that they will be treated and served very well. Keep Chris in your Rolodex!

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Eric Hsu

Midwest CPA helped us during the financial due diligence for the acquisition of an SMB. Chris did a great job communicating with us and the seller, he was very professional and delivered on the things he promised. His deliverable is thorough, organized and easy to read, would highly recommend.

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Alejandro Abdala

Chris and the team have jumped right on cleaning up our books. Received our first monthly review document and it was clear we made the right decision. Easy to read and follow along. A great snapshot of the business and expedient service. I would highly recommend Chris and the team at Midwest CPA for any accounting or bookkeeping services.

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Nicholas Bundzinski

Working with Midwest CPA was an absolute relief. Given our intricate tax situation involving ties abroad, multiple rental properties, and a non-traditional family structure, I was initially overwhelmed by taxes this year. However, Chris was incredible. Not only was he extremely professional from the get-go, but he also provided ample support, simplifying what could have been a very daunting process. His expertise was evident at every step, making everything comprehensible and straightforward. I cannot thank Chris and Midwest CPA enough for their exemplary service. We'll undoubtedly be entrusting them with our future tax endeavors. Highly recommended!

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DR G

I am thrilled to leave a glowing five-star review for Chris, who has been an invaluable asset in supporting both of my companies. His consistent dedication, unwavering engagement, and commitment to educating me on accounting and taxation matters have been instrumental in navigating complex taxation situations with ease. Chris goes above and beyond to ensure that all my accounting needs are met promptly and efficiently. His expertise and professionalism shine through in every interaction, making him an absolute pleasure to work with. I highly recommend Chris to anyone seeking a knowledgeable and proactive CPA who has knowledge is M&A due diligence, accounting, and tax strategy; and genuinely cares about their clients' success.

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Dominick Blue

Chris is one of the best accountants and it’s not even close. I use him personally and for my business. He is one of the most responsive service providers I’ve ever worked with. My former CPA was great but wasn’t equip to help me as a business owner since the former CPA was focused on personal taxes. Chris has been a truly invaluable partner / collaborator on numerous M&A deals in the small to medium sized business space, providing financial due diligence to various clients that I’ve worked with ranging from a buyer of a demolition company to a buyer of a niche online goods business. LOI If you’re looking for a rock solid CPA or someone that is really good at M&A financial due diligence, look no further than Chris’ firm.

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Matthias Smith

Been working with Chris at Midwest CPA for a few months now. Whenever we have a question Chris is quick to respond. We find him to be very meticulous and efficient in all aspects of our business. Our only regret is that we didn't find him sooner.

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Richard Allen

I highly recommend Chris Barrett and Midwest CPA to anyone looking to acquire a business. Chris is a knowledgable and reliable partner in a process that can be difficult to navigate. Throughout the process, Chris was clear in his communication and prompt with responses - always available when needed. I did not end up acquiring the business I hired Midwest CPA to diligence, and I feel confident in that decision thanks to the analysis Chris did and the questions he asked of the seller.

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FAQs

You have questions. We have answers.

  • Every small business owner can benefit from having a dedicated expert working for them to save on taxes and optimize their accounting processes.

    However, the majority of our clients find it makes the most sense to hire our firm for monthly bookkeeping after surpassing $250k/year in revenue.

    If your business has not reached that level yet you can still benefit from having Midwest CPA setup your accounting processes so that you can efficiently run them on your own.

    Further, engaging us for tax planning and tax preparation can provide you with a significant return on investment at any size. If we don't feel like we will earn our fees we will happily refer you to a lower cost provider better suited to your needs.

  • Most firms are generalist firms working with many different types of clients. This leads to them lacking the knowledge and understanding specific to people looking buying and grow small businesses.

    At Midwest CPA, all of our clients are all business buyers and owners. This allows us to communicate with our clients on a different level because we have seen the struggles you face before and understand how to create practical solutions specifically for you.

    We also have gained specialized knowledge of the tax code in the industries we work in. This allows us to provide our clients with tax planning strategies that they will not receive from a generalist.

  • It depends on the size and complexity of your company as well as the types of services you are looking for help with. 

    We currently have clients paying anywhere from $700-5,000/month.

  • We work with all of our clients throughout the year so that we can be strategic and proactive around taxes.

  • This is a common reason we see clients leaving other firms to join Midwest CPA. They feel it is impossible to get a response from their CPA in a timely manner especially during tax time.

    We pride ourselves on providing our clients with outstanding service and for that reason we make a point to respond to all of our clients within 24 business hours. Even if we can’t fully answer your question right away we will be in constant contact with you at every step in the process.

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