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Eight Efficient Tax Planning Tips for New LLCs

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Limited liability companies (LLCs) have become popular over the past year thanks to their pass-through tax status. 

March 15, 2024
Author: NCH

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As a pass-through entity, LLCs don’t have to pay corporate taxes. Instead, everything they earn and lose goes to their owners, who must report it in their tax returns. 

This status lets them lower their tax liabilities effectively. But what if you want to save more money and maximize the tax benefits of your new LLC?

Tax planning is the answer if you want to reduce your taxes further. 

In this blog, we’ll discuss what tax planning is and how it works. We’ll also explore several tax planning tips you can use for your new LLC’s filings. 

Learn how proactive tax planning can help you save thousands of dollars annually.

What is Tax Planning?

In tax planning, you analyze your financial situation to reduce your LLC’s taxes. It involves carefully evaluating your income, investments, expenses, and potential deductions to maximize your company’s profit. 

Some of the most basic tax planning strategies that LLCs use are reducing income, contributing to retirement plans, making deductions, and utilizing tax credits. 

Proper tax planning can help you increase your cash flow and redirect your resources to other important aspects of your business. It empowers your LLC to operate with greater financial efficiency and resilience.

Eight Tax Planning Tips For New LLCs

Tax planning can be overwhelming, especially when you’re a first-timer. To help you out, we’ve outlined eight tips to make tax planning easier for your new LLC. 

Understand The Difference Between Tax Credits & Tax Deductions

Contrary to popular belief, tax credits and tax deductions are different from one another. Tax deductions are expenses you’ve incurred that you can take off your taxable income. They reduce the amount of your income that will be subjected to taxes. 

Meanwhile, tax credits give you a direct reduction in your tax bills. For example, if you have a $1,000 tax credit, your taxes will be lowered by $1,000. 

Understanding the difference between these two items will help you develop tax planning strategies that effectively reduce your liabilities. 

List Down Your Tax Deductions & Tax Credits

Now that you know the difference between tax credits and tax deductions, it is best to list all the write-offs you can claim in your filings. 

Here are some of the key deductions and credits your new LLC may be eligible for:

  • Startup Costs: Expenses you spent to start your new LLC can be deducted from your taxable income. However, this write-off comes with a $5,000 limit for startup expenses of $50,000 or less. 
  • Business Meals: Meals you bought during company-wide events like holiday parties are 100% deductible. Meanwhile, means for clients or prospective partners are 50% deductible. 
  • Research & Development (R&D) Credit: The R&D tax credit rewards businesses of all sizes for innovating their processes or products. 
  • Work Opportunity Tax Credit (WOTC): The WOTC can be claimed by LLCs who hire individuals facing significant barriers to employment. 

Choose Between Standard Deduction & Itemized Deduction

Another important decision during your tax planning is taking the standard deduction or itemizing your write-offs. 

A standard deduction is where you subtract a predetermined amount from your tax bill. The IRS typically sets the amount for standard deductions based on a person’s filing status. They adjust it every year to accommodate inflation. 

Meanwhile, itemized deduction is where you take all the individual deductions you qualify for one by one. 

The standard deduction is great because it will simplify your filing process. It’s a straightforward method for reducing your taxes. But if the amount of deductions you’re eligible to claim is greater than the standard amount set by the IRS, it may be best to save all your receipts and tally all your expenses.

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Plan For Your Retirement

If you haven’t started planning for retirement, now’s the right time to do it. Retirement plans like 401(k) savings, Simplified Employee Pension (SEP), and Savings Incentive Match Plan for Employees (SIMPLE) IRAs can help reduce your LLC’s tax liabilities. 

Any contributions in these plans, whether for yourself or your employees, can be deducted from your taxable income. 

Take Advantage of Your Health Savings Accounts (HSAs)

Like retirement plans, HSAs can help you significantly reduce your tax bills. If you have independent, highly deductible health coverage, you can contribute up to $4,150 for the tax year 2024. Meanwhile, those with family premiums can contribute up to $8,300.

Time Your Income

Delaying or accelerating income is another tax planning strategy most LLCs use to lower their taxes. 

You can delay some of your income by sending your clients their bills around mid to late December. This way, their payments will come around January of the following tax year. 

On the other hand, you can accelerate your income by billing your clients earlier. This strategy effectively avoids any potential tax increases that may come your way.

Know Which Tax Records to Keep

With so many forms and documents to file, it isn’t easy to know which of them you should keep and for how long. Keeping your tax returns and other records is vital, especially if the IRS decides to audit your LLC. 

Keeping your documents for at least three years is best since it takes them three years to decide whether a return should be audited.

Hire A Expert

Lastly, the most effective tax planning strategy you can use is hiring a tax expert. Tax experts have years of experience and knowledge that they can use to help you maximize your LLC’s tax benefits. 

They keep themselves updated on any changes in federal tax laws that could significantly impact your taxes. This way, you can ensure that your tax planning strategies are aligned with new regulations. 

Moreover, tax experts can offer you strategic advice for long-term financial planning. They can help you determine which investments or retirement plans are more tax-efficient. 

Hiring a tax expert is an investment in your LLC’s financial health and overall success. 

Work With A Tax Expert Today

If you’re looking for a tax expert who can help you turn your LLC into a tax-efficient business, NCH is here to help. 

Our team of tax experts will provide invaluable advice on minimizing your taxes and maximizing your tax benefits. They will help you plan your LLC’s finances so that you can make informed decisions on its future.

We will also help you file your taxes properly and on time to avoid penalties and audits. With NCH, you can rest easy knowing that your new LLC is tax-efficient and tax-compliant.

For more tax planning tips, visit our website here or call us at 1-800-508-1729.

Disclaimer: The above material has been prepared for informational purposes only, containing opinions of the provider, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consider consulting tax, legal, and accounting advisors before engaging in any transaction.

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