The importance of tax planning for small business owners extends well past the April 15 deadline. Instead, it’s a year-long process that requires in-depth financial planning and tax strategies that will save owners money for the long term.
An expert in small business accounting services like Saddock Advisory can help create this roadmap of initiatives businesses can take now to improve cash flows, minimize taxes, and plan for the future. In the meantime, it’s helpful to understand both the objectives of tax planning and the advantages of tax planning to ensure financial success for your business.
Understanding Tax Planning Objectives
“Tax planning” is a broad term with different and detailed definitions for every business. However, generally, the primary and broad objectives of tax planning include the following.
- Reduce tax liability – As the name obviously implies, a primary objective is to minimize tax liabilities across the board. This aspect of tax planning entails keeping detailed records and having in-depth knowledge of available credits and deductions. Additionally, it is important to make minor adjustments that do not impact operations but can have substantial benefits when it comes to taxes owed at the end of the year.
- Improve cash flows through strategic timing – Timing is an essential element of tax planning, and the income and expenses that are made now can influence this year’s tax return, and the years that follow. Most businesses’ income ebbs and flows and is not necessarily static. Therefore, paying attention to these fluctuations and declines in revenue – and how they can affect your taxes and bottom line – is an integral part of all aspects of financial planning, including taxes.
- Ensure compliance – Depending on the business structure, specific tax obligations must be met to avoid penalties and fines. A primary objective of tax planning should be to have a foundational understanding of these regulations, tax laws, and deadlines, and to keep them in mind throughout the year.
- Set Goals for the Future – Tax strategies should also align with long-term business goals, and as a result, these strategies are always evolving. The tax strategies you employ now may change as your business grows and expands. Therefore, it’s essential to understand that tax strategies should be altered when new advantages or considerations arise.
Key Strategies for Tax Planning
Once you have your tax planning objectives in mind, there are a few key strategies to consider that may grow your revenue while minimizing your tax liability. Our tax experts at Saddock Advisory can help you craft the best strategies for your unique business. However, here are some examples of strategies to bear in mind.
- Choosing the right business structure – Different business structures, such as sole proprietorship, LLC, corporation, etc., inherently have different tax implications. Therefore, your current business structure may not be the best way forward as your business grows. Routinely consider the different options available regarding business structures and how they may impact on your tax obligations now and as your business evolves.
- Deductible expenses – From your utilities to your equipment to your marketing initiatives, there is a wide range of business expenses that can be deducted from your annual taxes. Make sure you are aware of all these potential deductions and keep careful records throughout the year to minimize your tax liability. (Again, timing plays a role here, too, as it may be more financially beneficial to make a big tax-deductible purchase this year as opposed to next year, or vice versa.)
- Tax credits and incentives – There is also a lengthy list of potential credits and incentives for business owners, such as retirement initiatives or hiring certain employees for your team. A tax expert can help you explore your options for these possible incentives that will enhance your business while reducing your taxes.
Connect with a Professional Financial Partner and Tax Planning Resource
If you haven’t taken a deeper but broader look at your tax planning or have not created a concrete set of tax strategies and determined how to achieve them, then there is no better time than the present.
The best first step is to start a conversation with an expert resource who can pave the way for your future and help you create seamless and actionable tax planning strategies. Reach out to our tax professionals at Saddock Advisory for a little initial guidance or to start a lifelong partnership and discover how much you can enhance your revenue when you have an expert guiding the best way forward.
