End-of-Year Tax Strategies: The Intersection of Business and Estate Planning

With a new year just around the corner, now is a time when many people are thinking about what they can do to minimize their tax liability. Tax, business and estate planning strategies often go hand-in-hand; and, for business owners, taking a comprehensive and cohesive approach can be essential not only for avoiding unnecessary income tax, but for protecting their businesses and family members as well.

Here are some examples of end-of-year tax strategies that can have both business and estate planning implications:

Maxing Out Retirement Contributions

Maxing out retirement contributions is an easy way for business owners to reduce their income tax liability, and matching contributions are tax-deductible. Of course, saving for retirement also builds the value of your estate, meaning that you will have more wealth stashed away to pass on to future generations.

Incurring Tax-Deductible Business Expenses

Incurring tax-deductible business expenses is a common end-of-year tax planning strategy for business owners. When leveraging this strategy, however, business owners need to ensure that they are truly using business funds for business purposes. Improperly claiming business deductions is among the most common issues leading to audits (and liability for interest and penalties) for business owners.

For business owners, business-related tax planning serves (or should serve) two important estate planning-related purposes: (i) it should help improve cash flow, allowing for greater draws (and greater personal savings); and, (ii) it should help increase the value of the business. While incurring tax-deductible business expenses can serve both of these purposes, this needs to be done carefully and in strict compliance with the Internal Revenue Code.

Recognizing Losses from Business Investments

The same is true of recognizing losses from business investments. While recognizing losses (or “loss harvesting”) can substantially reduce businesses’ (and business owners’) tax liability, a compliance-conscious approach is required. Business owners should also think carefully about whether it is truly in their best interests to harvest losses now, or if doing so could prove even more beneficial in the future.

Making Charitable Contributions

Similarly, while making end-of-year charitable contributions can help reduce businesses’ (and business owners’) tax bills, this isn’t necessarily the best approach. Estate planning considerations come into play here as well; and, all things considered, it may ultimately make more sense to take a longer-term approach to charitable giving in some cases.

Making Gifts or Loans to Family Members

Making gifts or loans to family members can also be an effective short-term tax mitigation strategy for business owners in many cases. Additionally, for those whose posthumous gifts may exceed the federal exclusion amount, starting a gifting strategy now could be essential for long-term tax planning as well. But, here too, there may also be competing interests to consider; so, once again, a comprehensive and cohesive approach is required.

Discuss Your Strategy with a Lawyer at Rendigs

If you have questions about what you can (and should) be doing as a business owner to implement an effective end-of-year tax mitigation strategy, we invite you to get in touch. Call 513-381-9200 or contact us online to schedule a confidential consultation with a lawyer at Rendigs today.