It’s never too early to start 2024 business tax planning

DEPOSIT PHOTOS

Tax planning for businesses frequently occurs at or near year end. However, that timing may be too late to implement certain actions for the current year that could save tax dollars. A more prudent approach would dictate tax planning be a year-round endeavor to potentially maximize the tax benefits a business can realize.

There are a variety of planning opportunities that a business can evaluate. Some depend on the type of entity the business is, such as a C Corporation, S Corporation, Partnership or Sole Proprietorship. Others depend on the size of the business, including the number of employees it has and its revenue and income. Still others depend on the type of business activity and the number of states in which it operates. Further, each business has unique attributes within itself, including ownership structure, growth goals, ownership succession goals, etc.

The following is a list of 12 planning considerations various businesses may evaluate throughout the year.

Planning Actions to Consider:

Employee Recruitment – Evaluate tax incentives for hiring employees, such as the work opportunity tax credit for hiring members of certain target groups who have faced significant barriers to employment.

Business Expansion – Evaluate state and local economic development incentives, goals, tax abatements, and credits that may be available for expanding operations in distressed areas.

Crypto Currency – If your business engages in transactions involving digital currencies like Bitcoin, consult with your tax professional to ensure you are compliant with evolving tax laws and regulations governing cryptocurrency transactions.

• Employee Ownership – Evaluate the potential significant tax benefits of implementing an Employee Stock Ownership Plan (ESOP) which allows employees to acquire an indirect ownership stake in a business through a qualified retirement plan. Contributions to an ESOP can be tax deductible, and if the business is an S Corporation, no tax is due on the percentage of S Corporation income allocated to the ESOP.
• Multi-State Taxation – For businesses with sales, operations, or employees in multiple jurisdictions, review nexus rules to ensure compliance with evolving regulations. Also, consider planning strategies to minimize state and local tax liabilities, particularly in this era of remote work arrangements in which employees can work in various states.
• Environmental and Sustainability Credits – Explore opportunities for credits and other incentives for those businesses investing in environmentally sustainable practices, renewable energy projects, or energy-efficient technologies.
• Research and Development Credit – Evaluate whether your business engages in qualified research activities that may qualify for favorable tax credits or expensing.
• Cost Segregation Study – If your business is purchasing a building, consider conducting a cost segregation study to evaluate the allocation of a portion of the purchase price to shorter-lived property, thereby accelerating depreciation deductions on that portion.
• Capital Spending Planning – Plan capital expenditures carefully to be able to fully take advantage of tax incentives such as bonus depreciation and section 179 expensing elections to qualify for tax benefits, while coordinating with operational needs and growth plans.
• Income Shifting – Assuming the business has multiple family member owners involved, consider shifting income to individuals or entities in lower tax brackets. For example, hiring family members and paying them reasonable salaries for services rendered may provide opportunities to shift income into lower tax brackets.
• Executive Compensation – Evaluate the design of your executive compensation packages, including equity-based incentives, to attract and retain key employees while minimizing tax liabilities for both the business and the employees.
• Succession Planning – Develop a comprehensive succession plan that considers both ownership and leadership transitions and minimizes the tax implications for both the business and its owners.

These tax planning strategies require careful consideration, analysis, and execution, often in tandem with tax professionals, legal experts, and financial advisors. Further, new tax legislation, critical IRS rulings, or important tax court decisions seem to occur annually which can provide or take away certain planning opportunities. Consequently, it’s never too early in the year to focus on tax planning for your business.