Tax Strategy and Tax Planning
Managing Your Tax Obligations Through Tax Strategies
Tax planning isn’t just about filing your return; it’s about proactive strategies to minimize your tax burden. By holding an annual tax strategy discussion and periodic planning meetings, we can take actions ahead of time to optimize your tax situation. If your circumstances change, we’ll make mid-year adjustments to ensure you’re on track. While basic compliance is essential, our focus is on strategic planning to save you significantly on taxes. See our packages here to learn more.
“Anyone may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.”
– Judge Learned Hand, Chief Judge of United States Second Circuit Court of Appeals
Arranging your business affairs effectively can minimize taxes and maximize wealth generation. Your wealth depends not on what you earn, but on what you keep. Reducing costs like taxes, penalties, and interest is key to wealth building.
Proper tax planning includes tracking revenues for estimated payments, choosing the right business structures, and maximizing tax-advantaged accounts.
A solid tax strategy encompasses business structure, deductions and credits, tax deferral accounts, and estate and trust tax planning.
Business Structure and Taxes
Early Decisions with an Impact
Selecting the right business structure can significantly impact your taxes. Simple pass-through entities are straightforward but subject your income to self-employment taxes (15.3%) in addition to standard income taxes. An S-Corporation allows you to reduce self-employment taxes by paying yourself through payroll. A C-Corporation offers complete personal liability protection and the ability to attract investors, but profits distributed as dividends face double taxation. Depending on your expected cash flow and exit strategy, we’ll determine the most advantageous structure for your business.
World of Deductions and Credits
Tax Credits and Tax Deductions
Credits, which are a dollar for dollar reduction in taxes, and deductions, which reduce your income, are the most commonly known part of the tax code. While you can simply live your life and see what happens, proper tax strategy involves making a plan at the beginning of the year to maximize your family’s ability to get these tax deductions and tax credits. These items are classified by the government as “tax expenditures,” because they are essentially virtual checks from the government to you in reduced taxes. Getting these benefits may be straight-forward (child tax credits don’t involve planning, other than having a child), or more complex like Increasing Research Activities Tax Credits (known as the R&D tax credit), or the former Domestic Production Activities Deduction that was phased out over the past few years.
Research and Development Credit
and Other Tax Credits
The tax reform removed the Domestic Production Activities Deduction (DPAD) but preserved the valuable R&D Tax Credit for startups. We can anticipate future administrations building on the existing Investment Tax Credit (ITC) for solar power and other renewable energy options. There are various specific tax credits that might benefit your business, and structuring your payments to maximize these credits is an essential part of effective tax planning.
Retirement Accounts?
or Health Savings Accounts and Insurance
If you qualify for a Health Savings Account (HSA), you can save money with pre-tax dollars and withdraw it tax-free for medical expenses. Retirement accounts come in two forms: Traditional (you save pre-tax dollars and pay taxes in retirement) and Roth (you save post-tax dollars and withdraw tax-free in retirement). Insurance company products can also help achieve various financial goals with tax advantages.
Effective tax strategies can involve moving today’s high-tax-bracket income into future low-tax-bracket income. This makes tax deferral beneficial, allowing you to take deductions at higher tax brackets and withdraw funds at lower brackets in retirement.
One challenge is that most information on investment and insurance products comes from the companies or their commissioned sales representatives. Finding impartial, fee-only advisors is valuable once you have an investment strategy. While we are not investment advisors and have no financial incentive to sell you products, we can help you develop a tax strategy to maximize your investment dollars and minimize your tax obligations.
Estate and Trust
Tax Planning Around Inheritance Tax
Estate planning, including the use of trusts, is a legal matter that requires working with an attorney that specializes in these vehicles, and we can recommend several good ones. However, the tax strategies that plan a role in those trusts and transfers are our area of expertise, and we can work with you and your attorney to develop the right plan methodology of wealth transfers. Strategies that maximize taking advantage of things like stepped up basis and minimizing things like estate taxes are critical to the preservation of wealth across generations.
Tax Planning and Strategies FAQs
What is tax planning and why does it matter?
Tax planning is the year round process of arranging income, expenses, and investments to legally lower taxes and increase after tax wealth. It reduces surprises, penalties, and interest, and improves cash flow.
How is tax planning different from tax preparation?
Tax preparation files last year’s return on time and accurately. Tax planning looks forward, choosing entities, timing income and deductions, and using credits so next year’s tax bill is lower.
How often should I review my tax strategy?
At least once a year with mid year check ins. Review after life or business changes like a new job, equity comp, real estate purchases, marriage, children, or moving states.
Which business structure reduces my taxes the most?
It depends on profits, payroll, and exit plans. Sole proprietors pay self employment tax on net income. S corporations can reduce self employment tax with reasonable wages. C corporations face corporate tax and possible dividend tax. We model options before you choose.
What are the most valuable small business tax deductions and credits?
Common items include Section 199A qualified business income, depreciation and bonus depreciation, home office, retirement plan contributions, R&D credit, energy credits, and hiring credits. We document and time each item to meet IRS rules.
How do tax credits differ from tax deductions?
Credits reduce tax dollar for dollar. Deductions lower taxable income. Both can provide savings, but credits often deliver a larger benefit when you qualify.
Can an S corporation save me self employment tax?
Often yes. Owners take reasonable payroll that is subject to payroll taxes and receive remaining profit not subject to self employment tax. Compliance and proper payroll setup are required.
When should I consider a C corporation?
C corporations can help with venture funding, stock plans, and retained earnings. They also add complexity and may create double taxation of dividends. We compare C corp, S corp, and LLC outcomes side by side.
How do HSAs, 401(k)s, and IRAs fit into tax strategy?
HSAs allow pre tax contributions and tax free medical withdrawals. Traditional 401(k) and IRA defer tax to retirement. Roth accounts trade no deduction today for tax free growth later. We choose based on current and future tax brackets.
Should I convert to a Roth IRA?
A Roth conversion can make sense when current tax rates are low or income is down. We project the tax cost now versus expected future brackets and plan partial conversions over time.
What is the R&D tax credit and do I qualify?
The R&D credit rewards companies that improve products or processes. Qualifying costs include wages, contractor fees, and supplies tied to development. Startups may use the credit to offset payroll tax. We assess eligibility and documentation.
How do estimated tax payments work for owners and investors?
Owners and investors often need quarterly estimates to avoid penalties. We set safe harbor amounts and update them after major events like a sale, bonus, or dividend.
What tax issues should I plan for if I move states or claim Florida domicile?
Plan for part year and nonresident rules, payroll changes, and state source income. We create a checklist for domicile evidence and file the correct state returns to avoid double taxation.
How does estate and trust tax planning reduce taxes for my family?
We coordinate with your attorney on trusts and gifting, plan for step up in basis, and align beneficiary strategy. Proper planning can reduce estate tax and preserve more wealth for heirs.
Can tax planning help real estate investors?
Yes. We plan depreciation, cost segregation, passive loss rules, short term rental strategy, 1031 exchanges, and multi state filings. Proper records and timing drive the savings.
When should I hire a CPA for tax strategy instead of DIY?
Hire a CPA if you have equity compensation, rentals, K 1 income, multi state activity, a business, or a major life event. Professional planning often finds savings that exceed the fee.
What will I receive in a tax strategy engagement?
A written plan with actions, due dates, and savings estimates, an entity and compensation review, a credit and deduction checklist, estimated tax schedule, and quarterly reviews.
How do we get started with tax planning and strategies?
Schedule a consult, upload last year’s return and current financials, and share goals. We scope the work, quote a fixed fee, and begin with an annual strategy session and mid year check in.
