The Do’s and Don’ts of Business Tax Planning

Are you a small business owner wondering about tax planning? Are you also wondering what it means for your income? 

Not accounting for space in your budget for tax growth can result in missing out on tax savings. Tax planning not only affects businesses but can help individuals steer clear of businesses.

Business tax planning has never been more important than it is today. The COVID-19 pandemic has made tax planning even more vital to your business’s long-term viability. 

See below for what you need to know about business tax planning and what you might want to avoid.

Strategies to Maximize Business Tax Planning

Business tax planning is critical to ensure the smooth operation and success of any business. Doing proper planning can help decrease the total amount of taxes a business must pay. It can also maximize future profits. The dos and don’ts of business tax planning include:

Do Understand Your Taxable Income

Understanding your taxable income is an important and unavoidable part of business tax planning. Knowing your taxable income allows you to make informed decisions on which deductions you can use. It can also help you know what credits you are eligible for.

Moreover, tax planning strategies makes it easier to file your taxes on time. It also helps you to avoid any potential penalties or fees.

When estimating your taxable income, make sure to understand the tax regulations that apply to your business. After that, report all of your income. Once all of your income is recorded, calculate your deductions and credits, then subtract those amounts so you have an accurate taxable income.

As you plan your taxes, make sure to research the deductions you are eligible for, as well as any potential credits that may be available to you. Additionally, review potential tax breaks you may have missed, or can use.

Finally, consider tax planning options, such as retirement accounts, to save on taxes in the future. Make sure to document all of your activities and decisions. Consult also a tax professional to ensure you are following all tax regulations.

Do Analyze Your Expenses to Maximize Savings

Tax planning strategies are key to maximizing the amount of savings your business will enjoy each year. When you review your current expenses, there are a few dos and don’ts to keep in mind.

First, review past spending and focus on expenses that can be eliminated. Don’t forget to be mindful of expenses that were added during the year as they may be legitimate deductions.

Second, analyze operations to determine which areas could be improved upon. It may be beneficial to institute more efficient methods to reduce costs.

Third, be sure to include payroll tax planning in your analysis. Make sure your business is compliant with applicable laws and regulations. For example, ensure that all employees receive the proper deductions from their pay.

Finally, estimated tax payments should be monitored. By keeping track of their due dates and making the required payments on time, you can minimize any surprise penalties or interest for non-payment. 

Don’t Forget to Leverage Tax Benefits and Credits

It is important to understand and leverage tax benefits and credits available to a business. These benefits or credits can range from R&D tax credits to employee-related credits to credits related to energy-efficient building upgrades. It’s important to explore what is available and speak to an expert to determine whether they are applicable.

Second, business owners must ensure they are keeping accurate and up to date records in order to be able to accurately claim expenses and make use of deductions. In addition, businesses should also be mindful of tax deadlines – make sure all applicable taxes are filed and paid on time to avoid penalties.

Finally, it is important to review the tax implications of any business decision prior to execution. Leveraging every available tax benefit or credit is key to a successful business tax planning.

Keep Tabs on Tax Credits and Write-Offs

Business tax planning must be taken seriously, as it can make the difference between success and failure. It is critical to keep tabs on any tax credits and write-offs to which a business is entitled.

Tracking these periodically can yield tremendous savings for businesses, so make sure to be aware of any changes to the credits and write-offs to which a business can be eligible for.

Additionally, businesses should make sure to have the proper records and accounting systems in place so that the deductions that are applied are both accurate and properly reported.

Keeping up with changes in the tax code can also be of great benefit, as not adhering to new regulations can lead to significant IRS penalties. 

Don’t Do It on Your Own, Ask for Professional Help 

Professional help is essential in dealing with complex tax laws, making sure your business is compliant, and looking at all the angles of expense accounting and saving.

It is important that tax preparation be done accurately and in a timely manner with an understanding of all elements in play, including the new tax laws. Professional help can offer guidance and advice on ongoing strategies and planning.

Furthermore, professional help can provide solutions such as outsourcing services to ensure accuracy, managing returns and consolidation, and other areas of expertise.

Although taking professional help can involve the cost of hiring an accountant, it is worth the expense due to the potential savings. Not having proper guidance and expertise on complex tax planning can create issues that can cause significant losses for your business.

Tips to Take into Consideration When You’re Doing Business Tax Planning

Tax planning is one of the most critical elements of running a successful business. By following the dos and don’ts of tax planning, you can ensure that your taxes are managed properly. Make sure to consult a tax professional for assistance with complex planning so your business can benefit from reduced taxes.

With the right strategy, business tax planning can benefit your business in a major way. Start planning today!

Don’t stop learning! Applied knowledge is key. Be sure to check out our other posts for more business-related tips.