Learn how to capitalize on every deduction and credit with expert tax planning for small businesses.
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.
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.
When it comes to tax planning for your small business there are 3 broad methods that you can utilize.
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.
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.
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.
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.
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.
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.
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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.
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:
If you hold QSBS for at least 5 years you may have the ability to exclude from capital gains the greater of
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.
Our typical client will pay an average of $1,000/month between bookkeeping, tax planning, tax preparation, and advisory throughout the year.
Some of our clients pay much more than this while some pay a bit less.
If you are just engaging us for taxes, our minimum project cost is $5,000.
In our experience we are able to generate the best results for our clients when we work with them throughout the year.
For that reason we recommend engaging us for either tax planning, or bookkeeping in addition to tax preparation.
Yes, if you engage us for business tax preparation services we will do your individual taxes as well.
March 15 – Taxes are due for partnerships, multi-member LLCs, and S-Corporations
April 15th – Taxes are due for C-Corporations and Schedule C filers
September 15th – Extended returns are due for partnerships, multi-member LLCs, and S-Corporations
October 15th – Extended returns are due for C-Corporations and Schedule C filers
*If any of the above dates fall on a weekend or holiday the due date moves to the next business day.*
For many of our new clients who have not been working with us throughout the year we will file you an extension. This is done in order to ensure your return is done as accurately as possible and that we are able to give it the attention it deserves to achieve the best results for you.
We will also strategically extend business tax returns for our clients when it makes sense to do so.
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