Federal tax planning for your business can make a large difference on small and large businesses alike. Without proper planning, the business can pay unnecessarily large taxes. Most of the tax planning can be done around the corporate structure the business selects. For the purpose of this article, we'll briefly discuss business tax planning using 3 possible routes. The pass-through corporation, the C Corp, and the use of retirement plans to lower the expected federal tax burden.
Pass-through corporations are just that: they pass the profits of the business directly to the schedule C of shareholders. This can be good and bad. In smaller businesses where most of the money is takes out of the company every year, this is a popular form of tax planning. However, the devil in the details of this business plan is that whether you take the cash or not, you owe the taxes on the profit. People should speak with an accountant before they select the right style of corporation. Certain types of income can not flow into an S-Corp.
The C Corp is truly its own entity with its own federal ID, etc. This company pays the corporate tax rate on whatever is left in the business to the end of the year and all disbursement are dividends. The C corp. is the most popular form of company to take public. Again, you should carefully consider and seek advice before choosing the best route for your new business.
Last, using and offering retirement accounts is a good way to lower your overall tax burden. By offering pre-tax retirement plans, the company can reduce is a social security tax exposure and offer incentive at the same time. Most popular are self-funded IRAs, 401(k)s (need to have at least 15 employees for this make sense) KEOGH plans, profit sharing, and in certain instances, a medical savings account. The business plan can reflect these accurately if structured properly. Contact us to find out more!