In recent years, independent insurance agencies have dealt with a hard market and, in some cases, the resulting commission decreases, driving some to seek ways to improve cash flow. One way to do this is through tax planning, which can increase an agency's profitability without sacrificing critical assets, including laying off staff or downgrading software.

Corporate tax planning involves strategically identifying and leveraging credits and deductions to minimize tax liabilities while complying with all applicable laws. However, a strategic approach goes beyond preparing for tax season. It is a year-round commitment integrated into investment decisions, cash flow management and employee benefits.

Cash flow optimization is the immediate benefit of tax planning. With strategically applied credits and deductions, independent insurance agencies reduce taxable earnings. These savings are significant for those with a razor-thin profit margin, meaning they can put that money toward investments, staff retention, software upgrades or hiring.

Effective tax planning doesn't just focus on when to realize income and when to incur expenses to mitigate tax liabilities. Supporting employee compensation with tax-advantaged approaches strengthens a firm's talent acquisition and retention efforts.

For example, an incentive stock option allows team members to purchase brand stock at a predetermined price. They can qualify for long-term capital gains tax rates if they hold it for the required period, providing considerable tax savings compared to the standard income rates that would otherwise apply.

Taking advantage of sector-specific deductions also accelerates business growth. Agents may be able to write off their workplace or home office. They can also write off a percentage of their internet bill if they use the service for work-related functions. Continuing education and state licenses are also fair game. The most substantial savings will come from software or commission write-offs because both account for a significant portion of business expenses.

Tax professionals who specialize in working with independent insurance agencies can help navigate the complexities of insurance-related regulations. However, before agency leaders schedule a one-on-one meeting with a tax professional, they should assess their assets, revenue, expenses and investments.

Understanding tax obligations can streamline collaboration but decision-makers must remember tax planning is a marathon, not a tax season sprint. Leveraging receipt tracking software, document management practices and expense monitoring tools throughout the year is essential. This way, they have a thorough financial record to make collaboration easier.

In addition to assisting with income and expense timing, tax professionals can help facilitate strategic compensation so agents—many of whom work on commission—can reduce their tax burden.

Management should consider employee compensation as an investment. Although hiring a professional costs money, job satisfaction leads to returns. Since 60% of independent insurance agencies have less than 10 staff members, according to a Trusted Choice® survey released in 2024, retention is crucial. How else will they keep up with clients' increased demand for communication and educational content?

Devin Partida is the editor-in-chief of ReHack.com, and is especially interested in writing about business and InsurTech. Partida's work has been featured on Entrepreneur, Forbes and Nasdaq.