Make a tax strategy for your small business

They say the difference between a successful small business and a bad joke is that you can explain a bad joke to the IRS.

Of course, you can explain a successful business to them, especially if part of that explanation involves a good business tax strategy.

That’s because a good strategy can maximize profits and cash flow by reducing your tax burden and optimizing the timing of income and expenses.

It can also increase financial awareness and planning because a well-crafted strategy necessitates a deep understanding of your business finances, income, and expenses.

If that sounds good, you’ll love this post because it lays out the steps you need to make your business taxes work with you.

Let’s go!

Step 1:  Seek Professional Guidance

Consult with a tax advisor. You don’t want to make a strategic tax plan alone any more than you want to design and build a house by yourself.

Unless you have extensive knowledge of the U.S. tax code and can keep up with all the changes, you’ll lose time and opportunities trying to create a business tax strategy alone.

You could also make some potentially dangerous mistakes.

Leveraging the experience and knowledge of a CPA who understands your long-term vision will keep you focused on what you do best: running your business.

Speaking of long-term vision, you’re going to need one.

Step 2: Lay out a long-term vision

Dr. Stephen Covey’s advice to begin with the end in mind still holds today, especially in business.  So, decide where you want your business to be in the next decade or two. Think about expansion plans like new product lines and even acquisitions.

Also, think about profitability and market share.

Then, get help from a CPA to analyze the impact of taxes on those plans. They can help you determine different tax structures and tactics to minimize taxes.

The trick here is to stay flexible. Rigid plans break apart in the winds of the business world, but flexible strategies bend with them. So, be prepared to adjust your vision and your tax strategy regularly.

Step 3: Assess your current business landscape

This is another tricky step because it requires you to keep one foot in the present and one in the future.  You must understand the tax implications of your current business structure and consider how you might want to change it as your business grows.

For example, suppose you want to raise funds in the future. In that case, an S-corporation may be an option because it allows you to sell stock that can be easily transferred, potentially attracting generational investors. It can also potentially lower the owner’s individual tax liability.

So, if you currently have an LLC but want to sell stock in your business, it’s good to speak with a CPA about plans to change to S-corp status, including the best time.

Let’s bounce back to the present for a bit.

Now is the time to identify tax deductions and credits. They must be relevant to your industry, of course, but they must also align with your long-term plans.

So, again, consulting with a CPA here is a wise move.

Step 4: Incorporate flexibility into your strategy

We touched on flexibility in Step 2, but Step 4 is where the rubber meets the road.

The first thing to do is prioritize sustainable growth. If you focus solely on minimizing taxes, you can become reliant on short-term loopholes, semi-permanent tax credits, and tax shelters that may hinder your growth by taking your focus off long-term plans.

And if tax laws change, as they tend to do, you’ll scramble to recover instead of growing your business. So, develop a strategy that accounts for variables like changing tax laws and economic conditions.

The Bottom Line

Tax strategies can be a key advantage for your business but remember that you may have to make short-term trade-offs to optimize your plan.

So, remain flexible and use your CPA as a strategic partner to make the changes necessary to meet long-term goals.

By following these steps and seeking professional support, you can ensure your business tax strategy aligns with your long-term vision and paves the way for sustainable growth and success.