The timing of business tax decisions can significantly affect cash flow, risk and after-tax returns for privately held businesses. Working with the right tax advisor at the right time can help you:
Here’s a quick self-check. If any of the following apply to your business, it's a good time to involve a tax advisor:
Tax issues can make a huge difference in the success of a privately held business. While tax should factor into every business decision, some decisions have a much greater impact on your tax position than others.
Getting ready to start a business is exciting. There’s a lot to think about and tax should be near the top of your list. A knowledgeable tax advisor helps you think through your long-term goals so you can choose the right business structure. Entity structure decisions made early can limit or expand your options as your business grows and evolves.
For example, qualified small business stock (QSBS) tax incentives can be extremely valuable for owners and shareholders in a privately held business. But those incentives could be off the table if you elected to be taxed as an S corporation when you first formed your business or in the following years. Planning ahead can preserve more options and may allow you to exclude millions of dollars of taxable gain when you sell the business.
Startups have access to special opportunities to save on taxes, especially for industries like manufacturing and distribution, but only if those opportunities are identified and claimed correctly.
Thanks to recent tax legislation, if you are a manufacturer, you can take advantage of generous tax incentives that weren’t available in the past. You can immediately depreciate manufacturing equipment, buildings and other assets that have traditionally required depreciation over a long period. Combined with other incentives, this legislation allows young businesses to reduce income tax liability during the early years, when extra cash flow is most critical.
Young companies may not need a full-time tax advisor, but accessing high-level insights and guidance through a fractional CFO or tax managed services can be a good investment.
When your business is humming along in a relatively static state, you may not need more than a basic tax preparer to help with compliance. Rapid growth phases, however, often demand a deeper level of expertise to help you avoid common pitfalls and get more value from your growth initiatives.
Raising capital is one of those times when tax guidance becomes especially important. How will the funding be structured? Will investors have an ownership stake in the company? If so, what’s the most tax-efficient way to structure the deal? Answers to questions like these can make a big difference in your tax picture and the long-term value of the transaction. Get it wrong and you could wind up losing out on much of the benefit of this round of fundraising. Done wisely, the funds can help your business achieve bigger goals and reach established objectives more quickly.
Timing major capital expenditures with tax implications in mind can affect the overall value of your investment in the business. There may also be tax incentives available that improve cash flow or help offset costs, but only if you understand how to qualify, document your eligibility and claim them correctly.
Are you investing in equipment that qualifies for special tax treatment? Are there local tax incentives available for your planned capital investment or job creation? Will a cost segregation study for your new building pay off? Capital expenditures raise questions that affect your bottom line, and getting tax advice early can help you make more informed decisions.
When your footprint grows, so does your tax complexity. Expanding into new states or considering cross-border transactions to reach international markets can bring new tax obligations and compliance requirements. The statute of limitations for tax obligations doesn’t begin to count down until you’ve filed a return, so unrecognized state tax liabilities can grow over time and cause problems years down the line.
Planning your expansion into new tax jurisdictions with the help of a qualified tax professional allows you to understand and comply with the constantly evolving regulations around sales and use tax, property tax, remote workers, income tax and more. It will also provide opportunities to reduce your total tax liability by allocating revenue and expenses effectively.
Any time you’re beginning to worry about taxes, it’s wise to consider whether a strategic tax advisor could be helpful. Besides the risk of tax complications, if taxes are taking up a lot of your focus, that’s time and energy you’re not spending growing your business.
Questions like these are important, but they can divert your attention from core business concerns that lie within your personal area of expertise. Bringing in tax expertise allows you to stay focused on running the business, while complex tax issues get the attention they deserve.
Selling your company or buying another is not something any business owner should approach without expert tax guidance. The way you structure the transaction, the wording of the contract and the actions you take (or don’t take) before closing can all materially impact your after-tax cash, as can countless other details of the M&A experience.
In fact, when it comes to business transactions, the longer your runway the better your outcome is likely to be. You’ll have more options available to you and more flexibility to structure the transaction around your long-term goals by working with a tax advisor several years before the deal takes place.
As with other business transactions, planning for your exit should begin years in advance. Giving yourself plenty of time beforehand allows you and your advisor to think through all the details, help prepare your successors to lead the business and maximize your return on years of hard work.
Ideally, exit planning begins at the time of business formation. But no matter when you begin the process, sound tax advice plays a powerful role in the outcome for you and your family. It's also important for the employees who will take over leadership of the business after you leave. With an experienced tax advisor, you can create incentives for these future leaders or begin transferring equity in a tax-efficient manner over time.
An experienced tax advisor is helpful at every stage and in every industry. However, tax savings opportunities often vary, as do compliance risks. Only an experienced tax advisor can offer specific guidance, but these concerns may be especially relevant for certain types of businesses:
The federal research and development tax credit can yield massive savings that transform the balance sheet for tech companies at every stage in the business cycle. Even if your business isn’t profitable yet, you may still be able to benefit from the R&D credit as an offset to payroll taxes.
The One Big, Beautiful Bill Act (OBBBA) includes a number of tax incentives designed to support domestic manufacturers. Identifying the right opportunities and determining how to take advantage of them can give your financial statement a big boost. A qualified tax advisor can provide the guidance you need, whether you’re just getting started, in the growth phase or running a long-established organization.
Recent court decisions have created uncertainty around the tax treatment of certain private equity business entities. Because these cases are being decided in different federal circuits, the rules may vary depending on where your business operates. As the legal landscape evolves, your tax advisor can help you understand which rules apply to your business.
Section 163(j) of the tax code limits the amount of interest expense a business can deduct from taxable income. Real estate businesses have the option to elect out of that limitation, but doing so comes at a cost. Some real estate businesses may also be able to revoke an earlier election. Working with a tax advisor can help you evaluate the tradeoffs and determine which approach provides you with the greatest benefit.
Taxes are a fact, but the amount you pay is not set in stone. The right tax advice at the right time can mean the difference between a good year and an unprofitable one. Our experienced tax advisors can help you reduce risk, grow your business faster and make more informed tax decisions.
Get a free one-on-one consultation to assess your needs and next steps to help you reach your strategic tax goals.
