I consult with a lot of businesses and inevitably the time comes where the business owner asks—what else can I do to save taxes? This is a great question. I love planning for opportunities for business owners to take advantage of tax laws that they weren’t aware of. For some, that is suggesting to set up a retirement account, or purchasing equipment that they needed prior to year end instead of next year. Also, can you hire your kids? What about a year-end bonus to reduce taxes?
Asking the Right Questions
Nobody wants to pay more taxes than the law says that they need to pay, But that isn’t what they mean to ask.
Let’s say you’re a business owner and your effective tax rate is 40%. Under how many circumstances would you spend $1 to save $0.40? I’m not talking about investing into employees. Even though you spend $1 and don’t get any cash value for it, you make up for it with efficiencies, better moral, more qualified employees, and eventually more things you can delegate. The intrinsic value is more than worth a dollar spent on your employees. No successful business owner would spend $1,000 to get a sale worth only $400. If just spending money was the answer, you could always pay your CPA more money.
The real question they’re asking is, where can they improve their business? This is where a relationship with the owner is vital. Anyone can suggest buying equipment or invest in retirement, but those “canned” answers aren’t right for everyone. What if the business is on the edge of recession and their forecast for next year is significantly lower than this year? What if they landed a new contract and need the cash for new employees, or are in a growth phase with large capital commitments?
Instead, it’s better to look at where the business is going and see what the good business decisions are. From there we look at opportunities to use tax law to best accomplish those goals. Sometimes we are able to do that, but sometimes we find that the owner and the business are better off paying the tax and accomplishing their goals. We don’t limit our planning to spending and cash requirements though, we look to tax credits and incentives as well. For example, California is offering a tax credit for creating jobs and investing in real and personal property within the state of California over the next five years. No need to spend extra, just a credit for growing and accomplishing your goals.
So if you simply want tax deductions, Google it and you’ll find no shortage of ways to spend your money. However, if you want to grow your business or better yourself financially, take the time and find a partner that will help you accomplish your goals. They will help you find opportunities to save you money along your journey.