Maximizing Deductions – Key Strategies for Corporate Tax Planning

corporate tax planning
February 13, 2024

Corporate tax optimization, or corporate tax planning, entails a complex set of strategies designed to minimize federal and state tax liabilities while safely staying within the confines of tax laws and regulations.  

Corporate tax optimization is an essential and money-saving initiative for any company. Therefore, every small business to a massive corporation needs to understand that the strategies involved are broad and finely tuned to align with a company’s best interest.  These strategies define how companies monitor their finances and manage their transactions and operations. Also, they even know how they structure the company itself, and as such, it can be a time-consuming and evolving process that changes from year to year. 

The best tax planning strategies for corporations begin with an expert resource that can provide a wealth of services. At Waters Hardy, we provide oversight of day-to-day operations to the more significant changes and advancements that will have big and long-term financial rewards. 

In the meantime, companies that want to adopt corporate tax planning strategies to minimize their tax liabilities now and well into the future can consider the following actions that could make a big difference.  

Examine Your Tax Status and Consider a Change 

Regardless of the size of your company (and especially if you have a small or medium-sized operation), you have a range of options for how to structure your business. These options include a sole proprietor or partnership, an LLC (or limited liability company), a S corporation, or a C corporation, and the inherent structure will also dictate how you structure your taxes. 

If you have experienced recent growth, changing your current business structure to a better fit may be beneficial, which could also be financially beneficial for your tax returns.  

For example, pass-through businesses (which include sole proprietorships, partnerships, LLCs, and S corporations) are not subject to a corporate income tax, as the net income of the businesses passes through to the individual owner’s tax return, where the top bracket is 37%. Because The Tax Cuts and Jobs Act of 2017 dropped the top corporate income tax rate from 35% to 21%, a tax status change may very well be a strategy that can result in significant tax savings, considering that a structural change aligns with all other goals of the company.  

Consider Moves that Take Advantage of Tax Credits 

 Businesses can take advantage of plenty of tax credits to minimize their taxable income. Moreover, some of these credits involve adopting broader tax planning strategies. 

A sample of some of these tax credits that can have significant impacts include the following.  

Credit for Small Employer Health Insurance Premiums 

Small or medium-sized businesses that provide health insurance benefits for their team might be able to claim credits that offset these expenses. This credit is designed for companies with fewer than 25 full-time employees, paying average wages of less than $62,000 and at least 50% of employee-only coverage for every team member. If your company or corporation does not meet these requirements, do not worry. Your tax professional can identify similar credits, deductions, and opportunities that will mitigate the cost of the benefits you provide your employees on a regular basis (like health insurance and – especially – retirement savings accounts). 

Work Opportunity Tax Credit 

The Work Opportunity Tax Credit (WOTC) comes into play for employers who hire and retain employees in specific target groups that traditionally face barriers to gaining employment. Examples include: 

  • veterans 
  • employees with a felony conviction 
  • employees with families that receive benefits under the Temporary Assistance for Needy Families (TANF) program.  

This credit can be worth up to $2,400 for every new employee. Furthermore, it’s an attractive opportunity for companies and corporations on the verge of exponential growth.  

Disabled Access Credit 

The Disabled Access Credit (DAC) can help small and medium-sized business owners offset some of the costs required for providing access to employees and customers with disabilities. Companies that have less than $1 million in revenue can claim 50% of up to $10,000 in expenses after the first $250 is spent on accessibility improvements. 

Take Stock of Whether it’s Time to Defer or Accelerate Income 

Your taxes are inherently impacted as your business grows during successful years (or maintains operations during leaner times).  As such, the timing of when to defer or accelerate income can be a complicated but profitable strategy that can help with your current and future tax returns. 

For example, if your company did major work for a client in December 2023 (and 2023 was a particularly profitable year), you may want to wait to bill the client until January 2024 to avoid shifting to a higher tax bracket. Conversely, if you expect 2024 to be more successful than ever, you may want to start planning some deductible expenses that will both reduce your taxable income while allowing your company to grow. 

Strategies in the defer-or-accelerate arena can vary greatly and require constant attention to finances now and in the future and expected tax changes in the years ahead. As such, you’ll need a professional guiding hand for these big decisions to ensure you make the most out of looming defer-or-accelerate opportunities. 

Your Best Route to Corporate Tax Optimization is to Partner with our Experts 

Tax laws are always changing and evolving, just like your company. Therefore, as a small business grows into a full-fledge large company or corporation, you need an expert resource who can help navigate these growing pains and ensure that your taxes aren’t negatively impacted along the way. 

This is where Waters Hardy can take the reins and provide professional and expert assistance every step of the way. Our services include: 

  •  daily accounting and payroll services  
  • tax compliance assistance    
  •  tax planning strategies 

These will all benefit you well into the future. We can assist you on an ongoing basis, or just temporarily to ensure your 2023 tax return puts the most money back into your business. 

Adopting corporate tax planning strategies that will be beneficial for the long term requires a client-focused team of experts whose sole focus is on your bottom line. Connect with us today, and let’s discuss how to best implement corporate tax optimization to benefit your business for years and decades ahead.  

Contact us today. 

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