Published on January 22nd, 2019 | by Bibhuranjan0
Best Tax Planning Tips to Exit the Business
Things may not always go well with businesses and if you think this is the time to exit the business, you need to organize a lot of things before you finally close it. One of the ways to exit your business wisely and successfully is to plan your taxes and make them as low as possible. There are many parts of the tax act that can be complicated and incomprehensible so you have to know the easiest ways to save from taxes while planning to exit your business. To help you with your tax dilemmas, here are the best tax-reducing strategies that you can use.
Define the Exit
Before you plan and organize your taxes, you need to know first why you are closing your business. Are you going to sell your business to your partners? Do you want to join a corporation? Are you going to transfer your business to a family member or a manager? Or do you just aim to recapitalize your business for partial liquidity? It is important that you know where your business is heading. You can’t just shut it down without a plan or direction. Whatever your reason is for closing your business, you have to clarify your goals while considering the possible value of your business wealth once you exit the market.
Plan your Taxes As Early as Possible
If you are having problems with your business or if you are just having thoughts about closing it, you need to plan your exit as early as possible. This also means planning and organizing your taxes the earliest you can. Apparently, closing a business is not easy and you have to go through a lot of processes and one of these is paying your taxes. You may need to spend a lot of money paying taxes so it is important that you manage your taxes well and apply various strategies that will help you reduce taxes or earn from them.
Utilize Debt Financing
Debt is a negative thing to many people but for businessmen, it can be an advantage. Most businessmen use debt financing for capital when they are just starting their business. This time, you are going to exit the business, so how can it help you? Essentially, if you are closing your business to recapitalize or you are passing it to a family; you need money to finance the new business. One of the best ways to do this is to use cash advance online where you can get extra cash to pay for good resources. Most importantly, the tax from your debt’s interest is deductible so it will help reduce your tax reliabilities while still benefiting from debt financing.
Keep Records of your Income and Expenses
As a businessman, you should know the importance of managing your finances well and you can do this by keeping track of your income and expenses. To take advantage of tax-reducing tools and schemes, you have to keep a record of all your finances. The tax law will require you to show specific records to take deductions and if you don’t have them, this means paying more taxes than you are supposed to. Recordkeeping is now made easier by advanced technologies so use computer-based recordkeeping solutions to make sure you’ll keep your data well. It will also help to organize file systems for your receipts.
Take Advantage of Bonus Depreciation
Bonus depreciation is one of the many things some businessmen overlook when they are trying to save from taxes. In fact, it is an effective tax-saving tool that may help when exiting the business. Your company’s bonus depreciation increases every year so while your business still exists, you have to take advantage of this scheme. Under the Tax Cuts and Jobs Act, the bonus depreciation is extended to 2026 so you can use it to buy a new or used property if you want to establish a new business. Take advantage of numerous tax deductions like this to help reduce your tax bill.
Keep Track of Changes in the Tax Law
There are lots of changes that crop up in various tax laws and even you’re planning to exit the business, it is still important for you to keep track of these changes. Certain changes on tax laws may affect your taxes in both positive and negative ways so you have to be well-informed and updated. This information will help you manage your taxes well and think of better options and more effective plans to reduce your taxes. You don’t want to be bombarded by taxes that you don’t know exist so make sure you know all the specific changes on tax laws. Above all, pay all your taxes and dues before you close your business to avoid conflicts and problems in the future.
Analyze your M&A
Your M&A is another important thing that you have to keep track of apart from your income and expenses. These financial transactions are also significant for you to use certain tax deductions that will help you save money for future use once your business closes. Merger activities are often encouraged by tax incentives that will help reduce tax bills so you may want to take advantage of it. Nonetheless, tax laws, especially in the US, can be complicated so make sure to keep track and analyse your merger and acquisition activities. If you manage your M&A well, you are likely to receive some tax benefits that will help with your exit.
Get a Captive Insurance
Businessmen use insurances to protect their companies against the risks of loss but with captive insurance, you will not only help protect your business but also yourself since it’s also a type of personal insurance. Unlike common insurance companies, policyholders can both own and control captive insurance. The great thing about it is that it can be a tax shelter, especially for small businesses. The premiums that will be paid to you are tax deductible so you can protect your business and get other financial rewards from it without worrying about additional taxes.
Set Up a Holding Company
Another tax-reducing strategy that you can use is setting up a holding company. Basically, a holding company is a limited liability company where you don’t have to sell goods or services but you will only own other companies’ shares. You can deter tax by using a holding company because if you don’t own the company’s shares directly, you can pay a dividend which will be tax-free to your holding company. As long as your holding company is connected to that certain company, you won’t need to pay the Part Four tax of the tax law.
Keep your Business Alive until It Runs Out of Money
If you don’t manage your taxes and finances well, this can give you lots of problems that will affect the state of your entire company. If you are planning to pass the business to your family or just recapitalize for a new business, you won’t want to run out of money even before your business closes. If your business goes bankrupt, all your exit plans and tax-reducing strategies will only go to waste. This is why if you want to exit the business, keep your business alive before you run out of money. This will not only save you from stress and problem but it will also help prepare stakeholders especially your employees for your company’s shutdown.