10 Strategic Business Structures to Minimize Taxes

Minimizing taxes is a crucial aspect of business management, and the right business structure can significantly impact your tax liability. Here are 10 strategic business structures and strategies to help you reduce your tax burden.

1. Entity Structuring: S Corporations and LLCs

Structuring your business into multiple entities can help in minimizing taxes. For example, you can put the land and building into an LLC taxed as a partnership and the operating business into an S corporation. This setup allows for salary and dividend distributions, reducing self-employment taxes and Medicare taxes[1).

2. SALT Workaround: Deducting State and Local Taxes

The State and Local Tax (SALT) workaround allows small business owners to deduct their state income taxes on their federal returns without the $10,000 limit. By setting up an S corporation or partnership, you can pay a discounted flat rate for state taxes and then deduct these taxes on your federal return[1).

3. Global Tax Minimization: Transfer Pricing and Tax Treaties

For businesses operating globally, adopting transfer pricing policies to maximize profits in low-tax countries and minimizing profits in high-tax countries can be effective. Utilizing income tax treaties and working with local tax advisors can also reduce global tax liabilities[4).

4. Choosing the Right Business Structure for Global Operations

The choice of business structure is critical for global tax minimization. Factors such as whether the company is publicly held, private equity-owned, or closely held, and whether it is expanding into treaty or non-treaty countries, influence the optimal structure[4).

5. Leveraging Pass-Through Entities

Pass-through entities like partnerships and S corporations can pass income, deductions, and credits to the owners, avoiding double taxation. This can be particularly beneficial for reducing federal income taxes[1).

6. Asset Allocation and Leasing

Allocating assets such as land and buildings into separate entities and leasing them to the operating business can create additional tax deductions. This strategy also helps in protecting assets and reducing liability[1).

7. Salary and Dividend Optimization

Optimizing the mix of salaries and dividends can help in reducing self-employment taxes and Medicare taxes. By taking a reasonable salary and distributing the rest as dividends, business owners can minimize their tax liability[1).

8. Utilizing Tax Credits and Incentives

Tax credits and incentives can significantly reduce tax liabilities. Businesses should explore available credits such as research and development credits, renewable energy credits, and other industry-specific incentives[4).

9. International Tax Planning

International tax planning involves structuring operations to take advantage of low-tax jurisdictions and tax treaties. This can include setting up subsidiaries in tax-friendly countries and utilizing foreign tax credits[4).

10. Regular Tax Planning and Compliance

Regular tax planning and compliance are essential for minimizing taxes. Working with tax advisors to ensure all tax laws are complied with and taking advantage of all available tax reductions can make a significant difference in the overall tax burden.