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The 7 Best Tax Strategies for Scaling Businesses from a Fractional CFO

As a business, you want your money working for you as efficiently as possible. Follow these 7 best tax strategies to reduce tax liability and grow your business. 

June 12, 2024

As a business, you want your money to work for you as efficiently as possible. One topic at the top of many companies' minds is tax liability and tax strategies that reduce the income tax you must pay. 

As a fractional CFO, my job is to ensure you keep as much of your hard-won money as possible so you can reinvest it into the business and continue to grow. Here are my 7 best tax strategies for your scaling business. 

Tax Strategy #1: Strategic Timing 

Strategic timing when it comes to taxes is everything. By carefully planning when to recognize your income and incur expenses, your business can significantly influence its taxable income and tax liability. 

Some ways strategic timing can benefit your business include: 

  • Deferring income to a lower-tax year or accelerating expenses in a high-tax year to optimize your overall tax burden. 
  • Take advantage of tax credits and deductions that may be time-sensitive (your fractional CFO can help). 
  • Immediate tax savings can be achieved by timing capital investments to coincide with favorable tax provisions like bonus depreciation or Section 179 deductions. 

Strategic timing is a proactive approach every business should take to increase cash flow and provide the financial flexibility you need to support your operational needs and continued growth. 

Tax Strategy #2: Hire a Fractional CFO

Really. If you aren’t ready to hire a full-time CFO and you’re looking to optimize your company’s financials, then hiring a fractional CFO is the absolute best way to go. They not only help you maximize tax credits and deductions, but they also contribute to your bottom line because you’re hiring them on a contract basis, which means their taxes defer to them, and you can scale services up or down based on your needs. 

Hiring a fractional CFO can help your business: 

  • Identify and implement tax-saving opportunities.
  • Understand frequently changing tax laws in your area.
  • Provide insights into the most advantageous business structures and retirement plans. 
  • Ensure your tax planning is integral to your long-term growth strategies rather than a chaotic end-of-year activity. 

A fractional CFO brings a wealth of financial expertise and insight to your business at a fraction of the cost of a full-time CFO. It’s a cost-effective solution that doesn’t sacrifice quality. 

Tax Strategy #3: Structuring Salaries, Dividends, and Your Overall Business 

Speaking of structuring your business, you can ensure you’re not overpaying in taxes by paying attention to how you structure your business, employee salaries, and dividends. How you compensate company owners and employees through salary and dividends can influence your personal and corporate tax obligations. 

A fractional CFO can help with this tax strategy by: 

  • Helping set reasonable salaries that cover living expenses and retirement savings contributions. 
  • Ensuring your current business structure is the right one. For instance, S corporations allow income to pass through to shareholders, which prevents double taxation. 
  • Aligning your financial goals and tax strategy to your business structure and processes. 

You want your business to operate in the most tax-efficient way possible. That’s not always easy to figure out, so speak to a professional to reduce your tax burdens and support sustainable growth. 

Tax Strategy #4: Maximize Tax Credits and Incentives

We all want to maximize tax credits and incentives because that means more money to reinvest in your business. Finding all of those tax credits and incentives isn’t the easiest, but with the support of a fractional CFO, you can take full advantage of the credits and incentives available to you. 

Some common ways you can maximize tax credits and incentives are:

  • Research and development (R&D) credits. These can be a significant source of tax savings if you’re developing new products, processes, or technologies. 
  • Energy-efficient upgrades
  • Hiring from specific groups of people. 

Your fractional CFO stays abreast of the latest tax credits and incentives available at the federal, state, and local levels, so you can be sure that you know about and how to qualify for and leverage these incentives. Reducing your tax burden can improve cash flow so you can reinvest that savings into your company's growth. 

It’s also worth talking a little more about the R&D Tax Credit. It’s not just for tech companies. If your company contributes to the public good, like developing, designing, or improving upon processes and products, you may be eligible. You could save hundreds of thousands in taxes by utilizing this credit as much as possible. 

Tax Strategy #5: Utilizing Retirement Plans

As a growing company, you have to think about the cost of every employee. In this world of efficiency and growth, your team members need to drive significant revenue to be worth the cost of their fully-burdened salaries, which includes retirement plans and health insurance. 

Retirement plans are a powerful tax strategy with a couple of benefits. 

  1. They reduce your organization’s taxable income. 
  2. They attract top talent. 

The immediate tax savings can be huge, especially if your business is in a higher tax bracket. You can significantly reduce your tax liabilities while supporting the long-term financial well-being of your employees. A win-win! 

How can a fractional CFO help here? By helping you choose the best retirement plan for your business, one that aligns with your financial goals, meets regulatory requirements, and builds a strong foundation for the future growth of your business and the satisfaction of your employees. 

Tax Strategy #6: Use Bonus Depreciation Before It’s Gone!

Bonus depreciation is a great tax strategy that allows your business to deduct a large chunk of the cost of eligible assets in the year they’re put into use. In 2023, bonus depreciation allowed you to deduct 80% of the cost of eligible assets immediately; for 2024, it will be 60%. You can use this in tandem with Section 179, which has a deduction limit of $1,220,000 with a capital purchase limit of $3,050,000 for 2024. 

As a growing business, leveraging bonus depreciation and Section 179 can lead to substantial tax savings, but time is of the essence! This percentage will continue to decrease annually until it phases out entirely by 2027. 

Assets that may qualify include: 

  • Machinery
  • Vehicles
  • Computers
  • Office furniture

This tax strategy accelerates depreciation and provides substantial tax relief in the year of purchase. If you want to dramatically cut your tax bill, boost cash flow, and free up cash for reinvestment into your business, this is the way to go. 

Tax Strategy #7: Stay On Top Of Changing Tax Laws

Tax regulations are constantly changing, so staying on top of current tax laws is critical. It’s not only a good strategy. It’s essential if you want your business to survive. A fractional CFO can help ensure you’re not missing out on the latest updates by regularly reviewing tax legislation in your area, paying attention to industry news, and taking a proactive approach. 

A proactive approach to tax laws benefits your company by: 

  • Capitalizing on new deductions, credits, and incentives. 
  • Avoiding costly penalties and audits. 
  • Keeping a pulse on tax law changes to give you a competitive advantage. 

Ignorance is not bliss when it comes to taxes. A fractional CFO can help you leverage strategic timing, the right business and compensation structures, tax credits and incentives, and more to reduce your tax liability and drive your business forward. 

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