Proactive Strategies for Business Success: Tax planning early and often

When people think of taxes, they typically think of their annual return. However, to best manage tax liabilities and optimize tax credits, tax planning should be an ongoing process. Even more so, over the past few years, several states in the Northeast, namely New York, have unprecedented tax incentive programs for businesses.

Large state credits add complexity when tax planning for your federal taxable income. When you combine this with the state versus federal discrepancies for depreciation, you could run into a scenario where your federal taxable income is quite different than your state taxable income.

If you’re not careful, you could be phased out of certain state tax credits because of a high state adjusted gross income (AGI), even if you have tax planned down to a low federal AGI. For this reason, tax planning should be done early and often, and make sure your tax advisor is running both federal and state scenarios.

It’s also important to understand how to optimize tax credits. For example, the New York Investment Tax Credit (ITC) not only has strict requirements as to what type of asset qualifies, but also what type of income can qualify. If you’re planning an expansion or capital-intensive project, make sure your tax advisor is involved and the assets are accounted for in a manner that will optimize the credits.

Bottom line, you should be discussing business changes with your tax advisor on a regular basis – not just during tax season.

If you’re interested in learning more, call your local Farm Credit East office or contact us online.

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