“The avoidance of taxes is the only intellectual pursuit that carries any reward.” – economist John Maynard Keynes.
There is nothing wrong, immoral or illegal about seeking business tax deferral or reductions. Though it’s against the law to commit tax evasion (not paying what you owe through illegal schemes or subterfuge), the U.S. tax code exists so taxpayers know their responsibilities – and their ability to legally reduce their tax obligation. The tax code is like a river: its course is always changing, sometimes dramatically, but usually in small ways.
At 2024’s start, small businesses, as always, have opportunities for tax reductions. The rules allowing for this are in the law for a general reason: enabling businesses to reduce costs gives them a better opportunity to survive, grow, hire more employees, serve more customers and clients, and help grow the greater economy through the purchase of goods and services used by the businesses.
The tax code contains a substantial number of what in some cases might be called “niche” opportunities to reduce taxes. Among the tactics available to help a business decrease its tax burden are:
- Taking advantage of the still-lofty bonus depreciation allowance allowable under the 2017 Tax Cuts and Jobs Act. Prior to the TCJA, a business could deduct 50% of the cost of eligible equipment and assets during the year they were put into service. The TCJA raised the first-year deduction to 100% on the total cost. That benefit declines to 80% for tax year 2023 as part of a phase-out until bonus depreciation reaches 0% in 2027. The IRS web page answers frequently asked questions on this subject.
If not well understood, the term “phase-out” tends to be confusing. When hearing that the 100% bonus depreciation has phased out, there are some who think bonus depreciation is already gone or has fallen much further. However, 80% is available and should be applied to eligible 2023 purchases for tax-reduction purposes. - Higher employee benefits can lower employer tax liability. Though it’s a given that people want to make more money, straight salary or wage increases for employees are a double-edged sword: they increase a business’ employment tax costs, and increased costs affect an employer’s ability to provide employees with pay or benefit increases of any kind or hire new employees.
Tax-exempt fringe benefits present a business with a give-and-take scenario: they can substitute tax-exempt fringe benefits for pay hikes, and the employer doesn’t face increased employment tax costs. Such fringe benefits reduce employee personal expenses, which is effectively a compensation increase. The IRS website details these fringe benefits. Some, but not all, of the tax-exempt possibilities are child care; medical and dental insurance; group term life insurance; certain meals and related expenses; retirement account matching contributions; tuition assistance; and disability insurance. - Work Opportunity Tax Credit. This program, says the IRS, is a “Federal tax credit available to employers for hiring and employing individuals from certain targeted groups who have faced significant barriers to employment.” Through Dec. 31, 2025, wages paid to eligible employees within the targeted groups provide an employer with a tax credit of up to 40% of the first $6,000 of wages paid to eligible individuals.
An eligible employee, as described by the IRS, is in their first year of employment, certified as being a member of a targeted group, and performs at least 400 hours of service to the employer. The 10 targeted categories for WOTC eligibility are: qualified veteran; qualified IV-A recipient; qualified ex-felon; designated community resident; vocational rehabilitation referral; qualified summer youth employee; qualified Supplemental Nutrition Assistance Program benefits recipient; qualified Supplemental Security Income recipient; long-term family assistance recipient; and qualified long-term unemployment recipient.
The frequent references throughout this column – “eligible” and “qualified” – with respect to people and programs are indicative of the rules and requirements accompanying tax liability reduction strategies.
In fact, every tax-lowering method is accompanied by assorted, and often complex, legal and accounting steps. Many opportunities exist for businesses to conduct legal, honorable and financially beneficial tax deferral or reduction. Talking to an accomplished and experienced accountant to lower your taxes correctly is indeed an intellectual pursuit that carries rewards.
This article first appeared in Knox News.
