Aligning tax strategy with business goals

Last week’s post discussed how people and plans are the foundation of a good business tax strategy. 

And while a strong foundation is integral to a good business tax strategy, so is aligning it to your business goals. 

A tax strategy that is out of sync with business goals is like a car whose front end is out of alignment. 

At best, it’s annoying and distracting, burning precious time that is needed to run a business.  

However, it could be more dangerous, steering your business toward unintended consequences. 

But properly aligned, a tax strategy will reduce tax liability, improve compliance, mitigate compliance risk, and even enhance your company’s reputation. 

So, today, we’ll go over the steps to alignment so your tax strategy becomes an asset and not a liability. 

Let’s go!

Alignment Step One: Set clear business goals

Tax strategy should serve your business goals, so it is essential that these be defined and understood by your entire organization. 

For example, if you plan to expand hiring this year, you’ll want to look into state and federal hiring incentives, as discussed in last week’s post. 

We all know most business environments are dynamic, and sometimes goals change or are added in response to some unique opportunity. 

The key in this situation is to keep tax strategy top-of-mind. It should be a default process to immediately consult with your CPA about tax implications for any new or amended goals. 

Not doing so means missed opportunities or even non-compliance with tax laws, which brings us to the next step. 

Alignment Step Two: Tax compliance and environment

This year stands to be one of the most dynamic for business tax law in some time. That’s important for two reasons. 

First, if you plan to use a certain tax incentive to enhance a business goal, you have to ensure your business is eligible. For example, let’s say you plan to use the Work Opportunity Tax Credit to align your strategy with the goal of expanding your workforce. 

You’d probably want to know the IRS has updated procedures for applying and that a bill in Congress is proposing significant enhancement to the program. 

Next, you’ll want to assess how the overall tax environment might impact your bottom line. Many provisions from the Tax Cuts and Job Act of 2017 are set to change or expire this year. 

Consulting with a CPA to find out about them now will eliminate any tax surprises at the end of the year. 

Alignment Step Three: Plan for Mergers and Acquisitions

There’s plenty to consider when acquiring or merging with another company. Unfortunately, tax strategy can sometimes be neglected. 

That could lead to missed opportunities, like taking full advantage of any step-up in tax basis from newly acquired assets or not considering the potential tax implications of amortization of any goodwill acquired. 

There are pitfalls to consider, as well. Acquisitions can lead to unintended taxable gains, double taxation, and new state tax liabilities. 

Make sure to account for these potential problems so that your expansion dreams don’t turn into a tax nightmare. 

The Bottom Line

It’s not enough to just have a tax strategy. It becomes a liability if it doesn’t serve your long-term goals. 

So, take some time to sit down with your CPA, lay out your business goals, and adjust your tax strategy accordingly. 

Once you do, it will be a much smoother (and safer) road to success.