Last week there was a good article in the Wall Street Journal titled “Five Year-End Tax Strategies for Small Business” that has some ideas to slash your tax bill that are worth considering if your company’s fiscal year is the same as the calendar year. However, if you are considering contacting a business broker to sell your business within the next three years you will want to think carefully about how managing your financials for a tax benefit may impact your business’ perceived value and marketability. When you more heavily burden a year with expenses it generally has the effect of lowering the business’ value (particularly in the year prior to a sale). It is unusual to be able to spend an additional dollar in a tax year and receive a tax benefit that is greater than the dollar spent. Yet, reducing profits by that $1 usually has an impact of lowering business value by a multiple of that $1 spent.
So, if you are planning on holding your business for several years, then these tax avoidance strategies may provide some significant financial benefit, but if you are thinking of selling in the next few years you may want to talk with your business broker to discuss how taking advantage of tax avoidance strategies may impact business valuation.
