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Companies choose to refer to the legal tax shelters while attempting to reduce the taxable income and increase annual profits. From this point, tax shelters are the methods and operations necessary to reduce the taxable income and general tax payments, and they can depend on the appropriate financial analysis of the companies’ revenues and opportunities to invest. Thus, to contribute to the companies’ development, tax shelters should be legal and legitimate, and one of the effective tax shelters is based on controlling financial operations with references to choosing the effective pattern for investment (Burman, 2000, p. 129). From this point, realizing the financial control, companies receive the opportunity to choose and develop the most effective investment strategy which can be based on such patterns as the limited partnership, rental real estate investment or annuity contracts.
The effective investment strategies are based on the proper financial control and analysis of all the company’s operations and transactions. To achieve the most significant results while focusing on money control, it is necessary to refer to the long-term investment strategies. Long-term investments are discussed as the effective tax shelter methods because they save the company’s money indirectly while reducing the annual taxes slowly, and the noticeable results can be observed only after analyzing all the financial operations (Cascarino, 2012, p. 134). As a result, long-term investments can legally reduce the company’s annual taxes by 20% (Hanlon & Slemrod, 2009, p. 129).
Furthermore, long-term investment is the right choice for small and low-income companies because of the insignificant taxes related to this type of investment. From this point, to use the advantages of the tax shelter, the company should focus on the proper financial analysis of the company’s properties, revenues, and investment opportunities to choose the most advantageous variant of the legal tax reduction (Daily, 2009, p. 114). In this case, the attention should be paid to the expected barriers associated with the tax policies and to the expected tax savings to develop the most effective investment plan (Lawrence & Weber, 2011, p. 204).
While concentrating on the financial controlling and planning systems, many companies choose such variants of long-term investments as the limited partnership or the flow-through share because this strategy can guarantee significant tax reductions for the company. In this case, the task of the financial analyst and consultant is to analyze the company’s possibilities to provide investments and avoid risks and to focus on the effective money control strategies to choose the most appropriate variants of long-term investment (Cascarino, 2012, p. 102). As a result, much attention should be paid to choosing the tax shelter variant based on the long-term investment principle which is most advantageous for the company because the drawbacks in the financial analysis and control systems can lead to maximizing the taxes instead of their reduction and to minimizing the revenues (Daily, 2009, p. 134).
In most cases, the focus on the money control approaches and long-term investments can be discussed as the effective methods to reduce the companies’ taxes because using such strategies; the companies can rely on the expected tax savings and potential rewards associated with the industry’s development. From this point, the long-term investment can be discussed as the effective tax shelter method to reduce the taxable income and tax payments.
References
Burman, L. (2000). The labyrinth of capital gains tax policy. USA: Brookings Institution Press.
Cascarino, R. (2012). Corporate fraud and internal control: A framework for prevention. USA: John Wiley & Sons.
Daily, F. (2009). Tax savvy for small business. USA: Nolo.
Hanlon, M., & Slemrod, J. (2009). What does tax aggressiveness signal? Evidence from stock price reactions to news about tax shelter involvement. Journal of Public Economics, 93(1), 126-141.
Lawrence, A. T., & Weber, J. (2011). Business and society: Stakeholders, ethics, public policy. Boston, MA: McGraw-Hill Irwin.
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