Business Tax Planning Guide: 7 Techniques to Increase Your Savings

It’s crucial to have a plan when you have certain business objectives you wish to accomplish to guarantee you save time and dollars. This holds for all aspects of a small business, including marketing, production, and tax preparation. Knowing how to manage your taxes for your business will help you avoid paying too much in taxes and missing out on possibilities to save money. Discover seven doable tax preparation strategies in the following paragraphs to give your company the financial boost it needs.

A Tax Planning Strategy Is What?

A tax planning approach could seem scary if you’re a new small business owner. Small business taxes involve a lot of specifics, including understanding the fundamentals of tax deductions and knowing how to pay freelancers and independent contractors. You can, however, consider a tax preparation method akin to how you submit your taxes. Typically, saving money involves combining several diverse activities; it rarely involves just one.

What Is the Purpose of Tax Planning for Small Businesses?

Paying taxes may be a hassle. Even though everyone faces it, after a year of diligent work, finding out how much you owe in tax season can be demoralizing. Whether you consider yourself a small business owner or an individual taxpayer, you probably want to lower the amount of taxes you pay each year while still meeting your duty. Your tax approach should be planned to minimize both your federal and state taxes. You can then use the money you save by submitting your taxes to meet other business objectives and demands.

1. File Your Tax Credits and Deductions

It could be tempting to complete your taxes quickly and pay what you owe without taking deductions and credits into account. Some business owners might believe that their deductions and credits need to be more substantial to have an impact, but they can be very beneficial for your small business tax planning. By making charitable contributions and delaying your income, for example, you can increase your deductions and credits in several different ways.

2. Take Into Account the Entity Structure

Verifying your company’s corporate structure is one of the key components of business tax planning. Businesses occur in a variety of forms and sizes, each with its advantages and disadvantages.

An LLC offers more latitude in how its managers or members conduct business. Additionally, termination fees and self-employment taxes can be necessary. Even when your company is already registered as one entity type, it might be prudent to change your status, for example, from an LLC to a C corp. The best course of action is to look into business tax consulting services and consult with a professional who can advise you.

3. Assist a Nonprofit Organization

Giving to a charity is a simple approach to reducing your adjusted gross income, which is a popular strategy for small business tax planning. Regular donors to many charities will receive a year-end statement, but it’s still important to keep track of your contributions through itemized deductions. More details about charity contributions are available from the IRS.

4. Invest in Retirement

Even though retirement may seem far off, it’s important to start saving now and providing for yourself in the future. Think about providing your staff with a retirement plan, which can reduce your taxable income and offer further tax advantages. A 401(k) plan or a simplified employee pension (SEP) plan are two options for small business owners.

It’s crucial to remember that your staff members are not obligated to make contributions to a retirement plan. Instead, they can decide to invest in a Roth IRA, which does not qualify for a tax deduction. Retirement planning is only one of many tax strategies that can help your small business save money.

5. Provide Rewards to Employees

In addition to higher pay, most workers value an employer who provides quality benefits. These can include healthcare perks like medical or dental insurance or even reimbursement for expenses like transportation, tuition, or payments on federal student loans. According to the CARES Act, businesses may make a tax-free contribution of up to $5,250 to the federal student loans of their employees.

6. Offer up a Failing Investment

The well-known adage “When life gives you lemons, make lemonade” may be familiar to you. It may be difficult to consider a bad investment, but you may use it to your advantage when preparing your tax strategy.

You can record a capital loss or a negative income if you decide to sell a losing investment. By using this strategy, you can minimize your income and pay less tax. The maximum capital loss is $3,000 per year. Any surplus can be carried over to the following year.

7. Avoid Con Artists

The majority of tax advice given to business owners concentrates on tax breaks and ways to save money, but it’s also crucial to be aware of the various tax frauds. Predators frequently pose as the IRS and demand immediate payment to trick taxpayers in a variety of ways.

The IRS will never contact a person through phone, text, or email to request money or personal information. If in doubt, it’s better to get in touch with the IRS immediately through their website to confirm any notices you get.

Increase Your Savings by Collaborating with Tax Planning Experts

Knowing how to handle tax planning for a business might be difficult. A small business’s tax obligations might change depending on several factors.

Working with a professional who can give you advice on the most effective business tax preparation techniques is beneficial. The staff at Your Part Time Accountant is adept at proactive tax planning by understanding your objectives via the use of the correct questions. You’ll be more equipped to take advantage of the system when you prepare for and consider your tax obligations.