Have you considered all the tax planning strategies available to minimize your tax liability for the year? Although there are a myriad of ways to reduce your taxes, we put together a simple list of familiar and perhaps less familiar strategies that could give your business a much-needed break.

1. 401(k) plans

The limit for elective deferrals by small business owners and employees is $19,500 in 2020 and 2021 ($19,000 in 2019), subject to cost-of-living adjustments. 

Generally, you aggregate all elective deferrals made to all plans in which you participate to determine if you have exceeded these limits. If a plan participant’s elective deferrals are more than the annual limit, find out how you can correct this plan mistake. 

2. Optimize the way your business is structured.

Some businesses are simply not structured correctly to maximize payroll tax savings. For example, selecting an S corporation status allows busines owners to significantly reduce payroll taxes by taking a lower salary with the remaining profit distributed as a dividend, and thus, not subject to payroll taxes. An S status can also reduce income and payroll taxes on an eventual sale of your business.

3. Consider a Section 1031 tax-deferred exchange.

A tax-deferred exchange continues to be an under-utilized strategy to defer capital gains tax on the sale of a business or investment property when using the sale proceeds to acquire a similar or “like-kind” property. It can be a real estate investor’s best friend, enabling them to continuously defer paying taxes on investment property gains for as long as they want.

Both Section 179 and bonus deprecation allow businesses to deduct the full cost of capital assets immediately rather than depreciating them over their useful life, thereby reducing your tax liability sooner if needed. Whereas Section 179 is generally limited to your business’ taxable income for the year, the bonus depreciation is not limited by taxable income so you should consult a tax professional to discuss your particular situation. Both Section 179 and the bonus depreciation are subject to other rules, regulations, and limitations. 

5. Invest in a commercial solar tax plan

The investment tax credit (ITC), also known as the federal solar tax credit, allows you to deduct 26 percent of the total cost to install a solar energy system from your federal taxes. Remember that a tax credit is a dollar-for-dollar deduction in the amount of taxes owed. Additionally, those who qualify can further limit their tax liability through depreciation making the ITC a very attractive option for solar energy system owners or those looking to invest in the industry. 

These are just a few examples of how you can minimize your tax liability. Give us a call to discuss these strategies and more to ensure that you’re taking advantage of all the available deductions your business qualifies for today.

The information in this article is of a general nature and should not be acted upon without seeking additional guidance from a qualified tax professional. To identify and implement the tax strategies best suited to your situation, please consult with a tax professional today.