An entrepreneur’s main goal, typically, is to profit, but most start ups fail to maximize the potentials of tax planning. Why is this? Because, honestly, it’s really boring stuff. Nobody really brags about the tax credit they got hiring a minority employee; they want to promote their exciting new business. However, in order to generate the highest return for the business, a budding business person needs to remember this simple acronym: SALTT.
Splitting- The “Splitting” technique is as simple as it sounds- getting the government to pick up some of the tax burden. Believe it or not, sometimes the government will help out businesses financially if they believe that the institution will provide benefit to the community.
Additional Entities- For those businesses with multiple faucets of functionality, the business would be wise to place different sections in different states. Some states, such as FL, do not burden their taxpayers with income taxes. For example, Coca Cola makes most of its money due to their brand name, so the company has a separate entity (Coca Cola Bottling) located in low tax states to bottle their product.
Location- For those folks without the capital to branch out in to lower tax districts, the next obvious step would simply to initially set up shop in a lower tax state. There’s really not much to say about this one. It is important not only to determine the income and property tax of a state, but also the different tax rates of neighboring jurisdictions. Tax rates can vary from town to town, so do the research and reap the benefits
Timing- By simply delaying a purchase (or accelerating one), a taxpayer can legally evade taxation. For example, in MO, taxpayers must pay a property tax on the full amount of all personal property owned as of January 1st. By simply waiting until January 2nd to make you capital expenditures, you can successfully avoid personal property tax for a full year!
Transforming- This method involves transforming a deduction in to a tax credit. Cities offer programs to give a credit for hiring target employees or for building in blighted areas. Missouri has been using Tax Incremental Financing (TIF), which benefits blighted communities with tax benefits (property taxes, instead of being paid to the state, are funneled back in to the business), to encourage companies such as Nordstrom to set up shop in the area. Even our exciting new “Ball Park Village” is being benefited from a TIF program. Governments are actively offering TIF programs for revitalization of certain areas, so it is important to stay aware of such areas.
So there you have it, five easy ways to legally evade taxation. No need anymore to lie about all those “donations,” you’ve been making, this is legit. The creation of wealth through innovation and determination are key building blocks for performance, but it’s the boring stuff that brews success. Remember, tax planning may be bland, so don’t forget to add the SALTT.
Jared Fischer is a Graduate student at Saint Louis University. He is getting his Masters in Accounting. He has traveled all over the world is an expert on saving money. He is straight and to the point when it comes to giving you the most bang for your buck. He is an exclusive writer on Business on the Mound If you are an entrepreneur please Come & Pitch Your Business or give suggestions to other small business owners in the business world. You can email him at jfisch23@slu.edu