Most companies don’t just rely on revenue from their main business activities for cash inflow. They further invest retained profits into funds that give them a good return.

When it comes to investment funds, returns are inversely proportional to the risk incurred. The riskier an investment opportunity, the higher your returns will be.  Another factor to consider when investing your company’s money is taxes. Returns on investments are taxed for businesses.

Luckily, in Florida, small companies don’t have to bear the brunt of double taxation. Double taxation refers to companies being taxed on their earnings from business activities and then being taxed again on income from investments.

Here are some ways to reduce the tax liability on your investments to make them as tax-efficient as possible:

Invest in a tax-free instrument

There are many tax exempt funds that you can put your company’s money in. Every state has its own funds that are exempt from federal taxes. Municipal bonds are one such instrument. These debt instruments are issued by states to fund certain projects like infrastructure development.

Since these bonds are offered by the state, the probability of defaulting is extremely rare. The risk on such bonds is the lowest in the market, which is why they are considered to have a risk-free rate. Municipal bonds have more tax advantages compared to traditional treasury bonds.

Municipal bonds also offer attractive yields. Their yields don’t change on a daily basis and they happen to be on par with the yield of the S&P 500. Higher yield is offered to those willing to have their money parked for over 30 years.

Make sure you check the bond rating so you don’t put your company’s funds at risk. Bond ratings refer to the opportunity cost that the yield may change over the period.

Investing in a bond in your home state often means that you’re exempt from state taxes as well.

Assess your company’s financial position before investing

Tax rates are levied depending on the tax bracket that your company falls under. Luckily, small businesses in Florida are exempt from state taxes. This allows small companies to invest a larger amount for higher returns. However, despite being exempt from state taxes, your company may not always be in the position to invest. Take future plans into account before you invest in any instrument. Retrieving your funds before maturity can make the company lose out on returns.

Our experts at A&B Accounting And Business Solutions in Palm Beach County can give you all the advice you need for efficient investment options. We offer the best tax preparation service for small businesses.  Our experts also deal with payroll processing services and part-time controller services.