Most business owners look closely at taxes twice a year.
Once in the spring when the return is filed, and once in December when there is not much time left to change anything.
The decisions that tend to matter most sit in the months in between. They are usually questions about structure and timing rather than deductions found at the last minute.
This article is general information, not individual tax or legal advice. Your CPA and attorney should be part of the team advising you on the rules that apply to your business.
What follows is a list of the questions that come up most often with the business owners we work with in Central Florida.
Start with your entity and how you pay yourself
The structure chosen when a business was small may not be the structure that fits it now.
Different entity types treat owner compensation and distributions differently, and those differences can grow as profit grows. What applies to your business is a question for your CPA.
If you are paying yourself the same way you did five years ago and revenue has changed meaningfully since, that is worth putting on the agenda.
How you are paid also affects what you are able to contribute to a retirement plan, and how much of your income appears on your personal return in a given year. The compensation question rarely stays a compensation question.
Retirement plan design is worth reviewing every year
For a profitable business with a small number of owners, the retirement plan is often the largest planning item on the list.
A 401(k) with a profit sharing component fits many situations.
For owners with high, steady income and a shorter runway to retirement, a cash balance plan may allow larger contributions. It also carries funding commitments and annual actuarial work, and those are worth understanding before one is put in place.
We wrote about cash balance plans in more detail in a separate article.
The right design depends on your income, how consistent your profits are, your age relative to your employees, and what you are trying to accomplish. We review plan design with business owners as part of the overall picture and coordinate with your CPA.
Timing across two years, not one
A good deal of tax planning is deciding which year something lands in.
Depending on your accounting method and your particular facts, there may be room to shift the timing of an expense, an invoice, or a bonus. Whether that room exists, and whether using it helps, is a question for your CPA, who can look at both years side by side.
Moving income out of a high year and into a higher one accomplishes nothing.
Owners approaching retirement have a second reason to care. Personal income in one year can affect Medicare costs later, because Social Security generally relies on income information supplied by the IRS from an earlier tax year. A large one-time event in the business can have a longer tail than the return itself.
Capital purchases and equipment
Buying equipment or vehicles changes both the tax picture and the cash position, and those two do not always point in the same direction.
The rules around how quickly a purchase can be written off change from time to time, so the more useful question is whether the purchase makes sense for the business on its own terms.
If it does, timing it well is a bonus. If it does not, a deduction rarely justifies it.
If a sale or transition is anywhere on the horizon
Planning for a sale is usually easier when it starts years ahead of one.
Deal structure, how proceeds are characterized, and what has happened inside the business in the years before it goes to market can all affect what an owner keeps.
Starting the conversation early generally leaves more room to address structure and preparation than starting after a buyer is at the table. Your CPA and attorney handle the transaction itself.
Our part sits at the intersection of the business and the household: what the proceeds need to do afterward, and how that changes the personal plan.
Keep the business and personal sides in the same conversation
For most owners, the business is the largest asset on the personal balance sheet, and often the least diversified one.
Decisions made inside the company affect retirement funding and estate planning, and they shape how much concentration the household is carrying.
Reviewing them separately tends to hide that. We prefer to look at them together, and to coordinate with the tax professionals and attorneys already advising the business.
Florida specifics worth confirming
Florida does not impose a personal income tax, which is part of why many owners relocate here.
Businesses may still have state-level obligations, and what applies varies by entity type and industry. These rules change from time to time.
Confirm what currently applies to your business with your CPA rather than relying on what was true a few years ago.
What to bring to your next meeting
A short list makes the meeting more productive:
- Current year profit and how it compares to last year
- How you are paying yourself
- What retirement plan is in place and what has been contributed
- Any large purchases planned or already made
- Anything unusual coming up, such as a sale, a new partner, or a significant hire
That is usually enough to see whether there is planning worth doing before the year closes.
Business owners in Tavares, Lake County and Central Florida
Many of the owners we work with are somewhere between building the business and thinking about what comes after it.
What they are often trying to understand is how the company, the retirement plan, the tax picture and the personal plan fit together.
That is the kind of conversation we can help organize, alongside the CPA and attorney already advising you.
Frequently Asked Questions
When should a business owner start tax planning for the year?
Earlier than December. Several of the items that matter most, including entity structure, compensation and retirement plan design, take time to put in place. A mid-year review with your CPA leaves room to act.
What retirement plan makes sense for a small business owner?
It depends on your income, how steady it is, your age relative to your employees, and how much you want to contribute. A 401(k) with profit sharing fits many businesses. A cash balance plan may allow larger contributions for the right profile and comes with funding commitments. Plan design is worth reviewing with both your advisor and your CPA.
Does Florida tax my business income?
Florida does not impose a personal income tax. State-level business obligations vary by entity type and industry and can change over time, so your CPA can confirm what currently applies to your business.
How far in advance should I plan for selling my business?
Owners and their advisors often begin several years ahead. Deal structure and the condition of the business going into a sale both affect the outcome, and those are easier to influence before a buyer is at the table.
Do I need both a CPA and a financial advisor?
They do different work. Your CPA handles the return and the tax questions specific to your situation. An advisor looks at how the business fits into the overall financial picture and coordinates the pieces. The two working together generally produces fewer surprises.
Important Disclosure: Investment advisory services are offered through Destiny Wealth Partners, LLC, an SEC-registered investment advisor. Destiny Wealth Partners also conducts business under the names Destiny Wealth, Ruggie Wealth Management, and Nichols Wealth Partners. This material is provided for informational and educational purposes only and is not intended as personalized investment, tax, legal, or accounting advice. Destiny Wealth Partners is neither a law firm nor an accounting firm. Please consult your own tax and legal professionals regarding your individual circumstances. Past performance is not indicative of future results. Additional important disclosures are available at destinywealth.com/disclosures.
