Aligning Business Investments with Tax Strategy

Every business makes investments, whether it’s in people, equities, or equipment. Every business should have a tax strategy as well, but many don’t. 

If you have investments and a tax strategy for your business, then bravo! 

However, it’s not enough just to have them hanging out separately. These two are the equivalent of brother and sister in the business world. Yes, they can exist separately, but it’s much better when the family is together. 

So, today’s post will cover how to ensure your business investments are doing all they can within your tax strategy. 

We’ll cover the basics of business investments, potential pitfalls, and best practices for aligning these entities. 

Let’s go! 

Potential Investments

This is a deep subject and gets nuanced for specific industries. However, there are some investment ideas that almost any business can use. 

The most obvious is business equipment. Every business needs equipment, even if it’s only a computer. 

But before you buy, it’s always best to consult with a tax professional to ensure it is not only a wise investment but a wise tax purchase. 

For example, some businesses simply buy equipment to reduce their tax burden. However, they might be better off investing in their people by offering 401(k) plans, Health Savings Accounts, or other tax-advantaged accounts. 

The money might be better spent in equity, like an exchange-traded fund, with a low turnover, making it more tax-efficient. 

The list of options is immense, so it’s best to consult with a tax specialist to ensure the best choice is made for your tax situation. 

Speaking of working with a tax specialist, let’s look at some good ideas for aligning investments and tax strategies. 

Best practices for aligning investments and tax strategy

Consulting with a tax professional is always a best practice for tax strategy for several reasons. 

A good CPA can help you review or create a tax strategy that will provide options you may not know. They can also provide personalized advice and help you stay updated on tax changes. 

So, working with a CPA is more than just getting the numbers right. It’s having a trusted counselor in your corner who can provide insight no other professional can. 

Once you’re working with a CPA, you can better optimize the timing of investments and withdrawals. Buying equities at the right time can maximize deductions in high-income years, and strategies like tax-loss harvesting can put a silver lining on a poorly performing asset. 

Another best practice is to diversify your investments. If it fits your business, investing across appreciable asset classes like equities and real estate can help mitigate risk and offer more tax treatments. 

Also, consult with your CPA to determine if including tax-efficient investments in taxable accounts and less efficient investments in tax-advantaged accounts is an option. 

No matter the investment, it is essential to ensure they are reasonable and don’t create an audit risk. For example, investing in real estate may not make sense for some businesses and may start to look more like tax fraud than a tax shelter. 

The Bottom Line

Investing without considering tax strategy is like riding a bike with a flat tire. Things still progress, but there is always a drag that slows progress. 

By getting a CPA to align your tax strategy with your investments, your business can move faster and further.