Businesses are considering how to cut costs or increase prices, and it may feel like there aren\u2019t any good options. Do you lower product quality with a new supplier? Alienate customers with higher prices? Hurt employees with layoffs and wage freezes?\u00a0<\/p>\n
But before you make any painful choices, it\u2019s worthwhile to explore the nooks and crannies of the tax code first.<\/p>\n
Indinero CPAs and fractional CFOs are expert tax strategists. In this article, we\u2019ll walk you through 10 advanced tax strategies that you can use to protect your margins. For personalized advice, reach out for a free consultation<\/a> today.<\/p>\n We\u2019re hearing rumors that Chinese suppliers are offering to lie about the country of origin or value of goods on behalf of their American partners. Don\u2019t do that. There are perfectly legal ways to lower the impact of tariffs.\u00a0<\/p>\n Sometimes, an item may be sold many times before it arrives in the US. For example, something may have been made in Vietnam, sold to a distributor, and then sold to a final buyer in California for a markup.<\/p>\n The law allows businesses, under certain conditions, to base the value of a product on an earlier<\/em> sale, rather than the final one. Using this method, the middleman markup wouldn\u2019t be included in the tariff value.\u00a0<\/p>\n Despite being on the books since 1992, just 2.4% of total US imports are valued using the rule, but that\u2019s likely to change in the coming months.\u00a0<\/p>\n This probably doesn\u2019t apply to the average business owner.\u00a0<\/p>\n However, corporations importing goods from foreign subsidiaries have the opportunity to mitigate the impact of tariffs by reviewing transfer pricing policies.\u00a0<\/p>\n To prevent tax avoidance, international law requires related companies to treat transactions as if they were occurring between two independent parties. However, there\u2019s flexibility in setting the price within that framework. Fair market values fluctuate, and auditors generally accept anything within 20% of known industry averages.<\/p>\n A subsidiary might be raising the cost of import duties by rolling auxiliary costs, like marketing or legal fees, into the value of what it sells to its parent company. By reexamining that valuation method, you may be able to declare a lower import price to US customs without crossing any legal lines.<\/p>\n If you re-export something you\u2019ve paid an import duty on, you can pursue one or both of these strategies:\u00a0<\/p>\n IC-DISC details are complicated, but in essence, it\u2019s a legal structure that allows business owners to shift profit from their (high) regular income tax brackets to (lower) qualified dividends.<\/p>\n Businesses split FICA taxes with employees 50\/50, but fringe benefits are exempt for payroll tax purposes. Saving your 7.65% portion of FICA may sound marginal, but tariffs on most countries are only 10% right now. Every bit adds up.\u00a0<\/p>\n For example, you could save on your portion of FICA by shifting employee compensation to any of the following categories:<\/p>\n People would probably prefer to get paid in cash, but there are quite a few win-win scenarios we can imagine. For example, an employee may have student loans. You could take over their minimum payments and reduce their cash compensation by the same amount. Their life is no different, but you\u2019ve saved some money on taxes.<\/p>\n The WOTC is a tax credit for people from groups who face significant barriers to employment.\u00a0 Eligible categories include veterans, ex-felons, and even teenagers working summer jobs.<\/p>\n If you need to hire, it\u2019s worth checking if someone on the approved WOTC list may fit your needs. Depending on circumstances, the credit is worth anywhere from $1200 to $9600 per employee.<\/p>\n If you\u2019re making between $50,000 and $100,000, this could save you a few thousand a year. If you\u2019re making over $200,000, you could see five-figure savings with this method.<\/p>\n Unless you\u2019re a shareholder in a major corporation, you\u2019re probably being taxed as a pass-through entity, where profits (and losses) \u201cpass through\u201d to your personal income taxes. Tariffs are changing your COGS, but a little creative tax planning could help preserve the income you do<\/em> get from the business.<\/p>\n The details get complicated. However, in short, the switch is a legal structure that enables business owners to save on FICA taxes while shifting profits from higher regular income tax brackets to lower qualified dividend rates.<\/p>\n Here\u2019s how:<\/p>\n For more information, read our LLC to S Corp tax guide<\/a>, or ask an indinero expert if this is right for you.<\/p>\n When you recognize transactions can make a big difference in how much tax you pay. The key is the difference between cash vs accrual accounting<\/a>: do you record things when cash exchanges hands, or when contracts and commitments have been made?\u00a0<\/p>\n Here\u2019s a simple example.\u00a0<\/p>\n In effect, your taxable income is lower (for now) because you\u2019re recognizing expenses today and income tomorrow. You\u2019ll eventually have to pay tax on that money, but for the moment, there\u2019s more cash in your pocket.<\/p>\n When valuing inventory, do you use the first-in, first-out (FIFO) method? Most manufacturers do. It matches how goods flow through their business, where they sell the oldest items first. Think supermarkets; the milk with the nearest expiration goes in the front.\u00a0<\/p>\n But in a tariff environment, last-in-first-out (LIFO) may be advantageous.<\/p>\n Prices just went up, and LIFO allows businesses to deduct recent higher-cost purchases against current <\/em>sales. The cost of goods today<\/em> is higher under LIFO, creating a larger business deduction and lower taxable income.\u00a0<\/p>\n Keep in mind that this method defers when the older inventory will be claimed. It\u2019s good for preserving cash flow in the moment, but eventually, those taxes will come due.\u00a0<\/p>\n Given how much it\u2019s worth, it\u2019s surprising how few businesses claim it.<\/p>\n Are you doing research and development in the US? Do you have a federal tax liability? And does your research pass the IRS tests? Then you may be entitled to up to $500,000 in tax credits for work you\u2019re already doing.\u00a0<\/p>\n Check if you\u2019re eligible with our R&D Tax Credit Questionnaire<\/a>.<\/p>\n Clients often ask for creative tax strategies or loopholes. We know a few. But the truth is, it\u2019s easy to get caught up looking for something exotic before the simple things are covered. Automating expense tracking<\/a>, setting up payroll correctly, and keeping good records don\u2019t sound glamorous, but they can quietly save you tens of thousands of dollars.\u00a0<\/p>\n When the time is right, reach out<\/a>. Our qualified CPAs and fractional CFOs will help you uncover savings that fit your specific business. Don\u2019t let rising costs eat into your margins more than they have to.<\/p>\n Businesses are considering how to cut costs or increase prices, and it may feel like there aren\u2019t any good options. Do you lower product quality with a new supplier? Alienate customers with higher prices? Hurt employees with layoffs and wage freezes?\u00a0 But before you make any painful choices, it\u2019s worthwhile to explore the nooks and […]<\/p>\n","protected":false},"author":1,"featured_media":226257,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11759],"tags":[12843,19742,8980,11124,16168],"dealstore":[],"offerexpiration":[],"class_list":["post-226256","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-accounting","tag-accounting","tag-ease","tag-pain","tag-strategies","tag-tariffs"],"yoast_head":"\n![\"image2](\"https:\/\/www.indinero.com\/wp-content\/uploads\/2024\/11\/image2-1-1024x505.jpg\")
<\/a><\/figure>\nLower the Cost of Tariffs Directly<\/strong><\/h2>\n
Use \u201cFirst Sale\u201d Valuation Methods<\/strong><\/h3>\n
Review Transfer Pricing Policies\u00a0<\/strong><\/h3>\n
Explore Duty Drawbacks and IC-DISC Classification for Exporters<\/strong><\/h3>\n
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Reduce Payroll Without Laying Off Employees or Cutting Wages<\/strong><\/h2>\n
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Lower Payroll by Hiring Work Opportunity Tax Credit (WOTC) Eligible Employees<\/strong><\/h2>\n
Reduce Personal Income Taxes by Choosing to be Taxed as an S Corp<\/strong><\/h2>\n
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Preserve Cash Flow by Deferring Income and Accelerating Expenses<\/strong><\/h2>\n
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FIFO vs LIFO Accounting<\/strong><\/h3>\n
Claim the R&D Tax Credit<\/strong><\/h2>\n
Cover the Basics, and Go Deeper<\/strong><\/h2>\n
![\"image2\"](\"https:\/\/www.indinero.com\/wp-content\/uploads\/2024\/11\/image2.png\")
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