The business world is full of uncertainty: unstable markets, ever-evolving competition, and constantly changing technology environments. But, for better or worse, taxes are one of the business world’s only certainties. And no matter the industry or sector in which you operate, navigating the increasingly complex world of business tax can be a challenge.  

However, business tax strategies provide a way for organizations to stay ahead of the curve and mitigate potential tax-related roadblocks. In this blog, we’ll cover a high-level overview of business tax planning strategies.

What Is a Tax Strategy?

Having a plan of action to help minimize the amount of taxes that a business pays sounds good, right? That’s exactly what a tax strategy is—it identifies methods to help lower taxable income, increase deductions, and leverage tax credits to their fullest. An effective tax strategy takes into account a wide range of variables, including current tax regulations and an organization’s short- and long-term financial objectives.

Three Basic Tax Planning Strategies: Examples  

1. Shifting Your Expenses

An excellent yet simple method to reduce your organization’s taxes is to capitalize on capturing large purchase expenses before year-end. By buying equipment, furniture, or supplies for the business in the current tax year, you can claim the expenses on this year's tax return, effectively reducing your taxable income. This is a common practice for businesses and is an easy way to enhance your tax strategy.  

2. Shifting Your Income

Deferring income is a very basic strategy. By deferring income, taxes on that income will not be paid until the next year. For example, a business can delay sending invoices until the first quarter of the following year. This strategy often goes hand-in-hand with expense shifting.  

3. Leveraging Depreciation

At first glance, depreciation might not sound positive, but business-savvy operators understand the leverage that depreciation can provide. Here’s how it works from a high level:

• Depreciation allows businesses to record an asset's loss in value as an expense.  
• The depreciation must usually be spread over several years, but federal laws now allow businesses to depreciate 80% of qualified property acquired the year it was bought, up to $1 million.  

Before 2023, the deduction used to be 100% of qualified property. The federal government implemented a new regulation that dropped it to 80% (after 2023).  

Wrapping It Up

Business tax planning strategies can save your business a lot of money in the long run. By deferring income, capturing expenses, and taking advantage of tax credits and deductions, you can lower your business' taxable income and reduce your taxes.  

Many of these examples also apply to tax strategies for high-income earners, and these are just a sampling of common business tax strategies. Many more methods to maximizing tax savings as a business exist—we recommend reaching out to an experienced advisory firm to explore how your organization can optimize its tax strategy.  

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