A critical component of wealth management is strategic tax planning that leverages the most current tactics for reducing or deferring tax on your business revenue or investment income. There has been a lot of discussion about business taxes and the flat tax proposal and what it could potentially mean for business owners. But, at this point, it’s just that, a proposal, and you need tax strategies that work to your advantage with the current tax laws.
Trump’s Tax Law Act
On December 22, 2017, Trump signed a tax provision that cut the maximum U.S Corporate tax rate to 21% from 35%. Many large U.S. Corporations use tax attorneys and advisors that can get that tax rate lowered further to about 18%. Another great business advantage is that for pass-through entities like partnerships, sole proprietorships, and S Corporations, it raises the standard deduction to 20%. You can find more info here about the new tax law at the Tax Foundation website. But it’s advised to work closely with a specialty accounting and tax advisory firm, like Porte Brown based in Chicago, to help you navigate the new laws make the best decisions for your tax strategy. However, you will want to choose a tax specialist in your local area.
This is a great opportunity to defer capital gains from the sale of an investment property as long as a property of equal value is purchased within a given time-frame. If you are a business owner and you’re upgrading a commercial space for a larger one, this can be a great tax advantage. However, if your business model as a real estate investor is to renovate properties and then “flip” them for profit, you will have to keep up with the 1031 timing loop. After you sell a property, you have 45 days to identify a replacement asset and 180 days to close the sale.
Another beneficial use of this law is to avoid hefty depreciation recapture into your taxable income later. For example, if you sold your commercial property down the road at a price significantly over the depreciated value, you would be obligated to include the amount of the depreciation in your taxable income. A 1031 exchange would help you avoid a large depreciation recapture down the line.
Cost Segregation Studies
What’s the benefit of paying for this analysis for your business? In most cases, a simple straight-line depreciation method is used to take deductions against taxable income. However, with a cost segregation study, the property and other large business assets are analyzed by component and these are given specific recovery periods, and that can give business owners a definite tax advantage over just a straight-line depreciation method.
By reducing or deferring tax obligations, you can help you build long-term wealth by using that cash flow to increase operations, invest in new ventures, the possibilities are only limited by your creativity. By leveraging the knowledge of a seasoned tax and accounting firm, you can take advantage of the tactics listed above as well as many more like R&D and efficient building tax credits and Cryptocurrency tax planning. Careful tax planning takes time but without it, you are not only mismanaging your wealth, you are leaving money on the table.
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Contact Person: James M. Dudley
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