As a business owner, it is essential to have tax strategies to achieve financial success while maximizing profits and minimizing tax liability.
This is especially true for franchise businesses, which can be complex and challenging. Getting involved in a franchise business can be a great chance for market entrance or accelerated growth, but it can also be a challenging process.
In 2023, several tax strategies can help strengthen your franchise business, whether you’re a franchisor or franchisee.
Work Opportunity Tax Credit (WOTC): The first strategy is to take advantage of the Work Opportunity Tax Credit (WOTC). According to Franchise Times, these federal tax incentive rewards employers for hiring workers from specific groups, such as veterans and people with disabilities. By completing a pre-screening process and applying for certification, you can lower your federal tax obligation and gain a significant financial advantage.
Locate your franchise business in a Federal Empowerment Zone: The second strategy is to consider locating your franchise business in a Federal Empowerment Zone. These designated areas acquire tax benefits, grants, and other incentives to promote economic development and job creation. As a franchise business owner, you may be eligible for lower taxes, access to low-interest loans, and other federal employment tax credits of up to $3,000 per eligible employee per year.
Uncover Tax Credits And Incentives: It’s essential to review relevant credits and incentives annually—even quarterly—to ensure all relevant opportunities are being taken advantage of. According to Forbes, in almost every industry, businesses can benefit from research and development tax credits. This can be used to compensate for federal income tax and payroll tax liabilities. Your business may qualify for local tax credits for hiring and training individuals who experience barriers to employment. It is recommended that businesses work with financial professionals to evaluate their eligibility for these credits and incentives.
Use LIFO Inventory Method: Another strategy is to use the LIFO inventory accounting method. This method helps offset rising inflation and can be particularly useful for franchisees with inventory-heavy businesses by reducing the cost of goods sold, increasing the value of inventory on hand, and lowering tax liability.
Consider cost segregation studies and depreciation on assets: A cost segregation study separates personal property from real property for tax purposes and allows you to take advantage of shorter depreciable lives for personal property, decreasing taxable income. Depreciation on assets is a tax-deductible cost that allows you to regain the cost of your property over time. Utilizing both Section 179 and/or bonus depreciation can accelerate the associated deduction of these expenses and allow a full write-off in the year purchased.
Financial decisions: Making knowledgeable financial decisions is crucial for business success. This means making a budget, making strategic choices, and hiring qualified help that can help you manage your finances effectively. A well-constructed funding and convenient recordkeeping can keep your finances on track. Hiring help can free up your time and energy to concentrate on other facets of your business.
In conclusion, these tax strategies can help franchise businesses reduce tax liability and increase cash flow. It is essential to consult with a franchise-specialized accountant or consultant who can provide industry-specific insights and stay up-to-date on regulations and taxes that may impact your business. By implementing these strategies and making informed financial decisions, your franchise business can achieve the growth and success you desire in 2023 and beyond.