Accomplished business owners of significant wealth face many challenges; but perhaps the one we hear most often is “how do I reduce my tax bill”. Here are five advanced tax strategies specifically designed for wealthy business owners. By leveraging these strategies, you increase the potential to minimize your tax burden, optimize your after-tax returns, and pave the way for long-term wealth preservation. After all, it doesn’t matter “what you make”; what truly matters is “what you keep”.
1. Strategic Business Structures and Entity Selection:
Choosing the right business structure and entity selection is a fundamental step in mitigating taxes. From limited liability companies (LLCs) to S corporations and partnerships, each structure has unique tax advantages and considerations. And you need to consider both current taxes and future taxes (for example, upon business sale) in order to take advantage of significant savings opportunities such as QSBS.
2. Should I Use Qualified Retirement Plans:
Qualified retirement plans such as 401(k)s and defined benefit plans provide excellent opportunities for tax deferral and wealth accumulation. However, their current tax benefits are often significantly outweighed by longer term tax burden. Before piling money into qualified plans, make sure you are thinking about the long-term ramifications.
3. Coordination with Investment Portfolio:
Did you know that you can offset income generated by various forms of business entities with tax-savvy moves in your personal investment portfolio? For example, by strategically harvesting capital gains and losses, you can offset taxable gains with losses, thereby reducing your overall tax liability.
4. Current and Future Charitable Giving:
Philanthropy presents a powerful tool for tax planning. But all too often, we find that business owners don’t take advantage of all the tax benefits they are entitled to. For example, if you attend charitable galas or have charitable intentions denoted in your will, we have found that you are likely not taking full advantage of the tax benefits of your charitable intentions.
5. Estate Planning and Wealth Transfer Strategies:
Too often we see that business owners do not focus on estate planning and generational wealth preservation until after the sale of a business, and thereby forego millions of dollars of potential tax savings. By utilizing strategies such as GRATs, BCBDs, family limited partnerships, valuation discounts, etc., you can effectively reduce your taxable estate and maximize the value passed on to your heirs.
Mitigating taxes is a fundamental aspect of wealth management for successful business owners. By implementing advanced tax strategies such as strategic business structures, leveraging retirement plans, capital gains and loss harvesting, charitable giving, and comprehensive estate planning, you can proactively reduce your tax burden while working towards increasing your wealth preservation and growth potential. At Waldron Private Wealth, we help tailor tax optimization strategies to the unique needs of wealthy business owners. Contact us today to explore how we can help you navigate the complex tax landscape.
Waldron is neither a law firm, nor a certified public accounting firm, and no portion of the commentary content should be construed as legal or accounting advice.
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