The Tax Cuts and Jobs Act, which was passed in late 2017, is one of the most sweeping changes to the U.S. tax code in decades. The new law lowers the corporate tax rate from 35 percent to 21 percent and makes a number of other changes that affect businesses large and small.

In this article, we’ll share five proven methods for reducing your business’ tax liability.

The Tax Cuts and Jobs Act:

The Tax Cuts and Jobs Act (TCJA) changed some significant elements of the tax code that all business owners need to be aware of. The TCJA created new tax rates for businesses of varying sizes and structures. Specifically, businesses that are organized as C corporations are now subject to a flat 21 percent tax rate — one of the lowest in the world. If you’re operating as a partnership, LLC, S corporation, or sole proprietorship, you’ll also enjoy the benefit of lower tax rates. Additionally, the TCJA allows business owners to deduct up to 20 percent of “qualified business income” from their tax returns, meaning they can keep more of their profits and use them to reinvest in their businesses. Making use of cost segregation is another tax-saving measure that businesses of all sizes can apply. Cost segregation involves breaking down long-term assets into their component parts and then assigning each part a different depreciation period. This can help businesses decrease their tax liability by allowing them to deduct the depreciating value of the asset over a shorter period of time. It’s important to note, however, that cost segregation must be performed by a qualified tax professional to ensure that it’s done correctly.

Maximize the Benefits of the Research and Development Tax Incentive:

The Research and Development Tax Credit is a federal tax credit that businesses can take advantage of if they’ve invested heavily in research and development activities. To qualify for the credit, businesses must show that their research was intended to “create a new or improved business component.” This could refer to products, processes, formulas, or software — any activity that creates something new or improves upon an existing product or process. If a business is eligible, they can use the credit to offset their taxes by up to 20 percent of their qualified expenses.

Deferring Your Income:

Deferring income is another way to reduce your business’ tax liability. By deferring income to a later tax year, you can spread out your profits over a longer period of time and minimize the amount of taxes you’ll be required to pay at any given moment. This is particularly useful if you anticipate needing to pay state and local taxes in the upcoming year, as deferring income can help you avoid them.

Reducing your business’ tax liability isn’t always easy, but there are a number of measures you can take to ensure that you’re doing your part to ensure the success of your business. Taking advantage of the TCJA and making use of cost segregation, the Research and Development Tax Credit, and deferring income are all excellent ways to reduce your tax liability and keep more of your hard-earned money. Call us on (571) 440-7777 or EMAIL for more information.