Tax Strategies for Entrepreneurs – Maximizing Deductions and Minimizing Liabilities

Taxes appear like a necessary part of any business, yet they are seldom pleasant. It is all the better then to hire a great tax agency that can help you to optimise your expenses and save on taxes in any possible way, while keeping all legal regulations within a certain limit.

Legal tax saving measures are available but there are no shortcuts to tax evasion. We will be looking at different strategies with which entrepreneurs could lower their tax cuts and save money.

Captive Insurance Companies

As Keist puts it, keeping captives ‘discourages insureds from making excessive claims, encourages funding preventive loss control, helps cushion cash flow effects of claims, and helps identify uninsured risk exposures’. And any reserves kept within a captive are tax-deductible as an insurance company.

In some cases, a pure captive is wholly owned and controlled by its insureds. But other than that, smaller companies without the capital surplus available to form their own captives could find the sponsored captive cell programmes an attractive option.

Captive investment income is tax-deductible only if it meets certain federal requirements, which include insuring risk and partitioning or spreading it – or, in IRS-speak, the captive’s parent firm must have awareness of its risks and some (at least 50 per cent) of the premiums it pays into the subsidiary can’t be from its related parties). Revenue Ruling 2002-89 (which helps define a captive’s parent’s awareness of risk) and various of the IRS’s private letter rulings (which address ‘characteristics of the insured’s risk-spreading arrangements’ and help to determine whether a captive actually has spread risk, ie, whether an insured firm has demonstrated that 50 per cent of the premiums it pays is from unrelated third parties) provide some important guidance on the issue.

Charitable Trusts

Too high taxes can be reduced through charitable trusts that can be created for the management and distribution of income from cash, securities, precious jewellery, and real estate among others. High-net-worth individuals can create such trust as one of the options of saving taxes, and when created in the right manner, such trust can bring substantial tax savings.

Which of these trusts the donor chooses depends on his or her personal circumstances and goals – for example, a grantor charitable lead annuity trust (CLAT) can be a particularly good choice for donors with long-term, appreciated assets that are subject to hefty capital gains taxes if sold, since these will realise current income‑tax deductions on the payments they make while postponing all capital gains taxes.

IRS limits on charitable donations are subject to annual change, so a DAF can seem especially appealing if you want to make a contribution that exceeds them. In general, DAFs allow gifts to be made directly to a public charity (as opposed to, for example, giving to a private foundation). So if that is your aim, a DAF might have more advantages for you than a private foundation if you want to give more than these limits allow.

Qualified Small Business Stock (QSBS)

Small-business investors are typically eligible for a capital gains exclusion of up to $10 million per sale, but it is difficult to ensure yourself the benefits of that tax break so careful planning is needed to enable you to claim this benefit when you elect to sell your stock. Consult with an expert on taxes before you sell your stock.

It allows certain shareholders in qualified small business corporations to delay paying capital gains tax through Section 1202 of the Internal Revenue Code. To qualify, the corporation must have a certain structure as to its shareholders, and must keep extensive records about what it does.

As a result of the Tax Cuts and Jobs Act, investors must hold QSBS for two times more than their holding period to qualify for this benefit. Given these nuances, we can help you determine if this strategy is appropriate in your situation. We will review stock purchase agreements, certificates of stock ownership, and all other relevant documents to ensure that you can take advantage of this favourable tax discount when you sell your startup or small business equity.

Estate Tax Freeze

This is especially important for small business owners who can gain an advantage by having as many deductions as possible while also lowering liabilities. As a result of tax avoidance creating more profit and the chance to re-invest that capital, it can potentially accelerate business growth. Although tax avoidance can have negative connotations to some people – often confused with tax evasion – this article will explain how to increase deductions and lower liabilities so you can keep as much of your hard-earned income while staying within the regulatory framework.

Thus, it is important to examine all expenses including financing costs (charges for mitaining bank and credit card accounts or invoices paid before end of due-date with payment terms.) carefully to check all deductible expenses for tax purposes. Review of accounts receivable in order to write off bad debts pending at the yera end could reduce calculated tax incomes; use of asset depreciation with MACRS instead of reporting expenses all at once will all lead to further reduction of tax liabilities.

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