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Can Starting a Second Corporation Help Your Business Avoid Taxes?

On Behalf of | May 19, 2022 | Business Law

The more revenue your business generates, the more you have to plan to minimize your tax obligations. In addition to withholding income tax payments for workers, your company will need to pay taxes based on its overall income.

A good financial system can drastically minimize your company’s tax obligations while maximizing return for investors and reinvestment in the company. Medium to large-sized businesses sometimes need creative solutions for diminishing their tax liability.

For some companies, starting a second business is a great tool when combined with an aggressive tax minimization strategy. Why would a second corporation reduce the taxes of your current organization?

You can make deductible contributions

The reason a second corporation could help your current company minimize taxes is that the new organization will be a charitable one rather than one intended to generate revenue. By starting a not-for-profit corporation, a business can have a charity that it can contribute to for tax purposes. Overall, your organization can deduct charitable contributions, provided the amount that you deduct is no more than 25% of your taxable income for the year.

The not-for-profit corporation can receive a significant amount of its funding from your business and use those resources to achieve charitable aims that dovetail with your corporate mission. Additionally, you can develop goodwill with the local community by reporting on how much you contribute to charitable causes. Outside support from other businesses and individuals could amplify the impact of your not-for-profit organization.

The organization can have a positive impact by investing in public services, education or other causes.

Another benefit is that a not-for-profit organization serves as a local employer, even if the jobs are often not as lucrative as positions at for-profit businesses.

Unique tax solutions

Maybe you don’t operate in a field with an adjacent nonprofit niche, or perhaps your business is not large enough to generate enough revenue to make that much work worthwhile. There are many other strategies that can help successful businesses minimize their taxes while remaining compliant with Hawaii state and federal tax laws.

Learning more about common strategies used for tax avoidance and minimization can help your business maximize profits while minimizing liabilities.