Manufacturing owners commonly focus on year-end deductions (for example, equipment purchases and retirement plan contributions). Those moves can be helpful, but they are only part of a broader, multi-year plan.
It’s also important to recognize that taxes are highly fact-specific. Eligibility rules, timing constraints, and trade-offs vary by entity type, state, industry, and the owner’s personal situation. Nothing below is a promise of savings.
Why Tax Planning Often Stops Too Early
A familiar pattern looks like this: late in the year, you learn taxable income is higher than expected, and the quick fixes are (1) buy equipment, and/or (2) maximize retirement contributions.
Those steps may reduce this year’s tax bill, but they do not automatically minimize lifetime taxes, especially for owners who expect a liquidity event (sale, recapitalization, or generational transfer). Longer-term planning often requires decisions years in advance.
Advanced Strategies to Consider (When Appropriate)
1) Qualified Small Business Stock (QSBS) – Section 1202
What it is: If your business is structured as a domestic C corporation and meets strict requirements, eligible non-corporate shareholders may be able to exclude a portion (and in some cases up to 100%) of gain when QSBS is sold. The exclusion is subject to per-issuer caps (generally the greater of $10 million or 10× basis; for certain shares acquired after July 4, 2025, the cap may be increased to $15 million) and other limitations.
Key requirements (high level):
• Domestic C corporation; stock acquired at original issuance; generally an active qualified trade or business; and an aggregate gross-asset test (historically $50 million; for certain shares acquired after July 4, 2025, the threshold may be increased to $75 million).
Material limitations and risks: QSBS planning typically must be done years before an exit. Not all businesses or shareholders qualify, state tax treatment can differ, and converting to a C corporation can introduce double-tax considerations.
2) Opportunity Zone (OZ) Deferral – Section 1400Z-2
What it is: Taxpayers who invest eligible gains in a Qualified Opportunity Fund (QOF) may elect to temporarily defer tax on those gains until an “inclusion event” or December 31, 2026, whichever occurs first.
Key requirements (high level):
• Only eligible gains qualify; the QOF investment generally must be an equity interest; and the investment generally must be made within 180 days of the gain.
Material limitations and risks: Opportunity Zone investments are often illiquid and complex; the tax benefits depend on meeting ongoing program requirements and may be affected by future law changes. Investors should also consider investment risk, fees, valuation uncertainty, and state tax rules.
3) Charitable Remainder Trusts (CRTs)
What it is: A CRT is an irrevocable trust that can provide income to one or more non-charitable beneficiaries for life or a term of up to 20 years, with the remainder going to charity. CRTs may allow deferral of income tax on the sale of assets transferred to the trust and may provide a partial charitable deduction (subject to limitations).
Material limitations and risks: CRTs are irrevocable; assets contributed generally cannot be reclaimed. Distributions to beneficiaries are taxable under IRS ordering rules and the overall outcome depends on payout design, investment returns, and individual tax circumstances.
4) Defined Benefit or Cash Balance Plans
What it is: In the right circumstances, a defined benefit or cash balance plan may allow larger deductible employer contributions than a 401(k) alone. Contribution levels are case-specific and depend on age, compensation, plan design, and actuarial calculations.
Material limitations and risks: These plans have administrative complexity, funding requirements, and nondiscrimination rules. They are not a fit for every employer, particularly where cash flows are volatile.
5) Coordinated Tax-Loss Harvesting (Investments and Business Activity)
What it is: Realized capital losses can generally offset realized capital gains, and a limited amount of net capital loss may offset ordinary income (subject to rules). Coordinating timing across taxable investment accounts and business transactions can improve after-tax outcomes.
Material limitations and risks: Loss harvesting is subject to wash sale and other limitations, and capital losses generally do not offset ordinary business income without careful planning. Tax treatment may vary by entity type and state.
6) Roth Conversions in Lower-Income Years
What it is: Converting some traditional IRA/401(k) assets to Roth accounts can be beneficial in years when taxable income is temporarily lower (for example, during a transition period after a business sale). A conversion increases current taxable income in exchange for potential future tax-free qualified distributions.
Material limitations and risks: Roth conversions can increase current-year tax, affect Medicare premiums and other phaseouts, and may not be beneficial if future tax rates are lower. The analysis should consider cash available to pay conversion tax and an investor’s time horizon.
Why These Strategies Get Missed
These concepts are widely discussed in the tax code and planning literature, but implementation often falls through when planning is fragmented among separate professionals. Many strategies require lead time and coordination across tax, legal, retirement-plan, and investment decisions.
A practical takeaway is to begin exploring exit and entity-structure questions well before a transaction is on the calendar.
FAQ
When should I start thinking about advanced planning?
Many multi-year strategies require early action. For owners anticipating an exit, it can be helpful to start several years in advance.
Will my current CPA handle these strategies?
Some CPAs will, but many strategies require coordination with legal counsel, retirement plan specialists, and investment advisers. Ask who is quarterbacking the full plan.
Do these strategies only work for large businesses?
Some are most relevant for larger liquidity events, but others (e.g., retirement plan design and certain investment-tax coordination) can be relevant at many sizes.
Important Information
The scenarios described above are for illustrative purposes only. They are not representative of the experience of all clients and do not guarantee future performance or success. This material is for informational purposes only and should not be construed as personalized investment, tax, or legal advice and individual results will vary. Investing involves risk, including the possible loss of principal.
Investment advisory and financial planning services offered through Summit Financial, LLC, an SEC Registered Investment Advisor, doing business as Silvertree, LLC