Tax laws are subject to change every year, allowing individuals and small business owners to plan how their tax savings can pan out. For any business, big or small, a diligent approach to tax planning is sure to open up new tax saving avenues, taking advantage of the business deductions for which it qualifies.
This article is an attempt to trigger meaningful discussions between the tax payer and the tax advisor, looking to create awareness about potential benefits of tax planning.
A few aspects which will substantially impact your business are listed below:
- Follow your tax laws closely | Hire consultants
As long as your tax filing is appropriate, there will be no roadblocks. However, for inappropriate filings, say, incorrect computation of sales tax, payroll tax & income tax, penalties, fines and punitive interest costs will add up. In case you do not have in-house assistance or unable to spend time on tax research to evaluate your business’s financial situation throughout the year, a CPA can help, by reviewing your overall position and providing you with the expert tax planning counsel you need today and in the years ahead. By combining unrivaled education, training and experience with a focus on your financial situation, a CPA can recommend sound strategies designed to make your goals a reality.
- Make use of deductions | Expense related
Some deductions you should research on and take advantage of are automobile deductions, home office deductions, travel expense and entertainment expense deductions. Utilizing deductions helps to deduct business costs from gross income. Section 179 deductions apply to most tangible personal business property in service during the tax year, such as computers, office furniture, vehicles and machinery. These provide immediate tax relief on newly purchased equipment, helps improve cash flow and increase investment options for small businesses.
- Classify your business | Different types have varied tax rates & liabilities
Proper classification of your business can help in reduction of your tax rates. You will be best advised to research on various types of businesses and what type your best fit is. Some business classifications are Sole Proprietorship, Partnership, Limited Liability Corporation, S-Corp, C-Corp among others with special tax statuses for some of them.
4. Plan for the future | Beware of tax traps
Ask yourself the following questions, and come up with viable plans for the future:
- Have I created the most tax efficient type of business?
- What is the best tax efficient way to save for my retirement?
- What is considered a reasonable salary by IRS standards?
- In case I wish to expand my business across states, what are the stipulations on multi-state taxability?
- Is there a requirement to report my foreign assets? Non-disclosure may lead to onerous penalties from IRS. Take care if you own a bank account, real estate, business or other assets in a foreign country.
- What is the IRS purview on business succession – most effective way to leave behind a business while avoiding a huge tax bill?
- Pay out taxes in installments
In case you face difficulties in paying your taxes in full, you can negotiate a deal with the IRS wherein monthly repayment is possible. This will be beneficial especially for small business owners. Choose the right payment plan based on your need and eligibility. However, be wary of interest payments that might harm your business.