How to use taxes as a tool to grow your business

As a small business owner, you’re probably bombarded with emails and ads about tools to help grow your business. Ironically, the Internal Revenue Service provides one of the best ways: taxes.  

That’s right, you can use taxes to your business advantage. And why not? 

As Ben Franklin said, taxes are one of the only two guarantees in life. So you may as well use them to your business advantage. 

Earlier this year, we took a broad look at business tax strategy, but today will be a deeper dive into tax tactics you can use to help reach your business goals. 

Let’s go! 

To get to the future, look backward

The best way to determine how to achieve your future goals is to look at the past. Assessing your current tax situation by looking at past returns will help you identify past deductions, credits, and incentives you used. 

And that can generate ideas on how to use them even more in the future. You can do this solo, but having a tax professional with you is helpful to provide ideas and insight you may not know about. 

Once your current situation is analyzed, it’s time to move forward. 

Set expansion and growth goals

Honestly, not every business plans to grow or expand. If that’s you, feel free to skip ahead. But if your business does plan to expand, be sure to consider the tax implications for growth. 

If your expansion involves brick-and-mortar moves in a new area, you should immediately seek to find out if there are any incentives or credits that can help. 

And think in layers. States, counties, and towns want to attract business, so you can use all their incentives simultaneously.  

For example, you may be able to get cash grants for job creation while getting tax credits for eligible investments even as you enjoy local abatements on real and personal property taxes. 

Hitting a trifecta like that may not happen everywhere, but with help from a local tax strategist, you can usually find more than one tax advantage.  

You can take also make use of federal workforce development tax incentives if you are growing your business into a new area.  Some states have them as well. 

But you don’t have to expand into a new area to use taxes to your business advantage. There are plenty of ways to do it, whether in expansion mode or not. 

Structuring Business Operations for Tax Efficiency

Of course, taking time to learn about the advantages of different business structures is always helpful in a tax strategy. But you can only make that decision once or twice in the life cycle of a business. 

Other tactics like income shifting and timing transactions can be used regularly and with great effect. 

There are many forms of income shifting, but many of them involve the transfer of money from a high tax bracket individual to one in a lower tax bracket. These are nice but don’t necessarily impact your business directly.  

One method that does is tax inversion. Individuals can transfer income-producing assets to non-grantor trusts in other states or countries with a lower tax burden. 

Not every business can use tax inversions, but the vast majority can time purchases of capital assets to their tax advantage. 

The IRS allows businesses to depreciate the value of these assets over time. By timing these purchases strategically, a business can maximize depreciation deductions in a specific year. Under Section 179 of the IRS code, businesses can expense the full cost of qualifying assets up to a certain limit in the year they are purchased.

The Bottom Line

The U.S. tax code has been vilified over the years, and rightfully so. It can be confusing. But the tactics above, coupled with some help from a tax professional, can help you turn the tables and start using them to meet your entrepreneurial goals.