Maximizing Your Business Success: 3 Essential California Tax Tips for 2024
Running a business in California comes with its share of challenges, especially when it comes to taxes. The state's tax code is complex, but with the right strategies, you can turn tax planning into an opportunity to save money and invest in your business's future. Here are three powerful California business tax strategies designed to help you navigate this intricate landscape.
1. Leverage the Pass-Through Entity Tax (PTET)
For many California business owners, the Pass-Through Entity Tax (PTET) is more than just a tax break—it’s a strategic advantage. Established as a response to the federal cap on state and local tax (SALT) deductions, the PTET allows businesses that are structured as an S Corp or Partnership to pay state taxes at the entity level, which reduces taxable income.The tax paid results in a credit to the partner’s CA tax owed.
Why it matters:
Maximize Deductions: Since the PTET is treated as a business expense, it effectively lowers your taxable income, which can significantly reduce your federal tax liability.
Eligibility Considerations: If your business operates as an S-Corp or Partnership, you might qualify. Choosing to pay the PTET could be a wise move, but it’s important to evaluate your specific situation.
With Realm Tax by your side, you’ll have the expertise needed to navigate the PTET election process.
Realm Business & Tax Advisory has helped many business clients save tens of thousands of dollars with the creative tax planning strategy. In order to take advantage of this, business owners should be having tax planning conversations outside of tax season.
2. Employ Your Children—and Save on Taxes
If you’re a business owner with children, employing them can be a win-win. Not only can you pass income to them at a lower tax rate, but you can also tap into several tax-saving opportunities.
Why it’s smart:
Deductible Wages: When you pay your children for legitimate work, those wages are tax-deductible as a business expense, lowering your taxable income.
Payroll Tax Savings: In certain cases, like if your business is a sole proprietorship or a family partnership, you might not have to pay Social Security and Medicare taxes on your child’s wages.
Long-Term Benefits: Your child’s income can be invested in a Roth IRA or a college savings account, growing tax-free for years to come.
Building Work Ethic and Skills: You can help shepard your child’s entry into the work force and help them to see what it means to work hard through example.
Bonding: Working together can also be a bonding experience – Roger DaSilva, owner of Realm Tax, can still remember working catering jobs with his mom and brother when he was younger.
The team at Realm Tax has extensive experience in assisting business owners with family payroll matters, making sure everything is done right so you can enjoy the benefits without the headaches.
Several Realm Tax clients have taken advantage of this strategy, allowing them to take a business deduction while helping their children with earned income and the ability to start saving tax deferred or tax free for their future.
3. Invest in California Opportunity Zones
California is home to numerous Opportunity Zones—economically distressed areas where investments are incentivized through preferential tax treatment. If your business is looking to expand, these zones offer a chance to grow while enjoying substantial tax benefits.
Why it makes sense:
Deferred Capital Gains: By reinvesting capital gains into an Opportunity Zone Fund, you can defer paying taxes on those gains, giving your business more liquidity.
Taxable Gain Reduction: Hold the investment for at least five years, and you can exclude 10% of the deferred gain from taxation. If you hold it for seven years, this exclusion increases to 15%.
Tax-Free Appreciation: Perhaps the most compelling benefit is that if you hold the investment for at least ten years, any appreciation in value is excluded from capital gains tax when you sell.
For businesses eyeing expansion, Opportunity Zones should absolutely be considered. Realm Tax has a proven track record of helping clients leverage these investments to maximize potential gains while understanding the associated risks.
Conclusion: Stay Ahead with Strategic Tax Planning
Tax planning in California doesn’t have to be overwhelming. By leveraging strategies like the PTET, employing your children, and investing in Opportunity Zones, you can reduce your tax liability and invest more into your business.
Navigating the state’s tax landscape requires more than just a general understanding—it demands the insight of an experienced advisor who knows the intricacies of California tax law. Realm Tax is committed to helping you make informed decisions that lead to long-term success. Contact us to learn how we can tailor these strategies to meet your business’s unique needs!