Tax Planning: A Year-Long Effort for Small Businesses

The April 15 tax deadline recently passed with relief to many Americans around the world as they had successfully completed their 2018 tax returns. Although tax season is technically over, tax planning for small businesses is a year-long effort. The sooner you start and plan your taxes, the bigger impact you can make on next year’s tax bill.

Numerous tax experts agree that addressing your tax liability effectively requires planning throughout the year. Those business owners who reap the most benefits consider their taxes year-round, rather than waiting to focus on tax payments only a few weeks before the filing due date

To take advantage of money-saving strategies and ensure regulatory compliance, business leaders should remain in constant contact with their advisers. Consider these five tax planning tips.

1.Think about your taxes regularly and meet with a CPA or tax consultant

It is easy to put tax planning off, and in fact, most business owners do. Consistently connecting with your CPA or tax consultant will help your business maximize savings year round. We suggest viewing each business quarter as an opportunity to make progress in your big-picture tax plan. It is important to evaluate your accounting method, and if it is not the best solution for your business you should consider changing your accounting method with the IRS.

Confirm with your accountant that you are taking advantage of all applicable deductions and that you understand all relevant tax regulations and laws, which can become quite confusing and change regularly. Your accountant can help you determine what percent of your income you should be set aside for quarterly taxes making payments on each quarter.

A typical small business qualifies for roughly a dozen tax deductions. Reviewing your taxes throughout the year will ensure that you are receiving the deductions your small business qualifies for. After all, if you rush to do them during the stressful tax season, you may miss out on a few! Take away the stress and make tax planning for small businesses a year-round effort.

2. Introduce Retirement Accounts

Pensions plans are a great way for small business owners to save taxes and accumulate money for retirement. A pension is a fund into which a sum of money is added during an employee’s employment years, and from which payments are drawn to support the person’s retirement from work in the form of periodic payments

Pension plans offer tax benefits because employers get a tax break on the contributions they make to the plan for their employees. So do employees: Contributions they make to the plan come “off the top” of their paychecks – that is, are taken out of their gross income.

Retirement plans can also help small businesses attract talented employees. Consult with your CPA or accountant to choose a retirement plan that makes sense for your business. Choosing the right retirement plan can help you and your employees make worthwhile investments in your financial futures.

3. Stay on Top of Bookkeeping

Without proper bookkeeping and good books, tax professionals can’t properly do their job. In fact, many tax pros won’t even take on a business client if the client cannot produce an accurate balance sheet and is unwilling to hire someone who will get his books in proper order. Good bookkeepers will record all your receipts and expenses, track accounts receivable and payable, and in the course of entering all your financial transactions also create a balance sheet for the business.

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4. Review Your Corporate Structure

Choice of the structure affects how a business operates. Perhaps less clear, it also affects how much a business and its owners pay in taxes. The U.S. tax code is quite detailed, and there are countless tax ramifications of selecting any particular business structure. This is especially important in the wake of tax reform, which updated the income tax rate for C-corporations to a flat rate and changed the tax structure for pass-through businesses.

5. Take Advantage of Deductions and Defer Income

A deferred income tax is a liability recorded on a balance sheet resulting from a difference in income recognition between tax laws and the company’s accounting methods. The total tax expense for a specific fiscal year may be different than the tax liability owed to the IRS as the company is postponing payment based on accounting rule differences.

If you are a cash basis taxpayer, income is taxed in the year it is received. If you think you will be in the same or lower tax bracket next year it may be a good idea to defer at least some of your year-end accounts payable until the following year. Doing so can help reduce your overall tax liability.

There are certain ways you can increase your deductions such as strategically purchasing high-cost items such as equipment or software. The tax reform updated the rules around how you can deduct for capital expenditures, so make sure you are familiar with the changes. Talking to a tax consultant can ensure that you are receiving all the deductions your small business qualifies.

Final Thoughts

Tax planning and preparation for small businesses is a yearlong effort. Don’t wait until the end of the year to consider your tax bill. Taking steps throughout the year can maximize your savings and returns. Additionally, tax planning throughout the year can significantly reduce your stress when tax season rolls around since your small business will be prepared.

Limitless Investment and Capital Tax Planning Services

Feeling stressed about government compliance and maximizing savings? Limitless Investment and Capital’s CPAs can provide expert advice and tax planning strategies. Your small business may have the ability to minimize taxes which could be the difference between profitability and just scraping by. Don’t pay more taxes than you owe and hire an expert from Limitless Investment and Capital.