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Tax Planning and Minimization

Tax planning and minimization is extremely important for all types of business, since these processes allow to ensure that appropriate revenues are kept in business and invested in further operations. The process of tax planning includes review of previous financial results, forecasts of taxation for the next period of time used in the company’s accounting system, and application of different financial vehicles for minimizing taxes as well as selection of appropriate tax minimization strategies.

Income tax minimization

  • Section 162 of Internal Revenue Code (Trade or business expenses) allows to reach a tax reduction for the “ordinary and necessary expenses paid during the taxable year in carrying any trade or business”
  • Transportation expenses can also be written off
  • Equipment depreciation can be used to deduct taxable income value (depreciation allowance)
  • Section 179 allows to perform annual purchases of equipment (limited by a given sum) which are tax deductible

Capital gains tax minimization

  • Capital gains can be offset and balanced with capital losses
  • Publicly traded stocks allow to put off paying the capital gain (the stock should not be liquidated earlier than within 1 year after the purchase in order to reduce capital gains tax)
  • Equity investments reduce capital gains tax
  • 1031 exchange allows to exchange one investment property to another (within 180 days) without having to pay capital gains tax

Estate tax minimization

  • Estate tax credit can allow estates below a given value ($1 million) to pass through federal estates taxes
  • Limited partnerships or LLCs can transfer the assets to other entities as limited partnership interests, thus getting a discount between 20% and 50% of the estate value
  • Charitable gifts are not taxed as well
  • Trust accounts can be used to minimize estate taxes