Tax planning services play a crucial role in the current and future success of many small businesses. Not only do they help you save money and plan for future growth, but they also ensure that your tax return complies with financial laws and regulations. And while tax planning can be done without the assistance of a financial professional, it may take up time that could be better spent managing your company, as well as put you at greater risk of making mistakes during filing.
This is where our team at Estess CPA comes in. Our comprehensive tax planning and preparation services can help you to take advantage of all applicable tax deductions and credits without worrying about running afoul of the IRS. And, in the process, we hope to help you gain a better understanding of not only tax planning, but also how you can make changes to your business in order to create a strong financial foundation for the future.
What are Tax Planning Services?
So, what exactly is tax planning? Tax planning is the process of assessing your finances in order to determine how best to minimize taxes owed. This is achieved through methods including deferring income, contributing to retirement accounts, and taking advantage of credits and deductions. That is, a sum of money which can be subtracted directly from your tax bill vs expenses which can be docked from your taxable income.
All of this, of course, must be done according to tax laws and regulations, and that is one of the areas in which an experienced accountant can truly shine. Incorrectly filed taxes are no walk in the park; you may be required to file all over again, if not pay penalties or interest. Financial professionals, however, stay up-to-date on all tax legalities, ensuring that your tax return will be IRS compliant and that you will not need to worry about audits or additional fees.
Maximizing Tax Deductions and Credits
Now that you know what tax planning is, you need to better understand the tax strategies you can take advantage of when filing. And one of the most important strategies to consider is reducing your tax liability through applicable deductions and credits. These may include:
- If a room in your home is used solely for business purposes, it may qualify you to deduct a portion of your home expenses—such as mortgage interest, rent or utilities—from your taxable income.
- The cost of using your vehicle for business purposes
- Premiums paid for business-related insurance, including health insurance for employees and professional liability insurance
- Retirement contributions
- Meals for employees, including food provided during work hours and office events
- Other employee expenses such as salaries, benefits and training
- Charitable donations
- Business travel expenses
- The cost of creating business advertisement and marketing materials such as logos, websites and social media campaigns
Unlike tax deductions, which affect your taxable income, tax credits allow you to gain dollar-for-dollar reductions in the taxes you owe. Some credits you may be able to take advantage of include:
- Employer-provided child care
- Work opportunity; that is, a tax credit gained by hiring individuals who may struggle to find work, such as former felons and SNAP or SSI recipients.
- Business-related research, such as software development or product design
- The purchase of a qualified plug-in or fuel-cell electric vehicle
- Small employer pension plan startup costs
Considering Your Business Structure
Another important aspect of tax planning is considering your business’ structure. As a small business owner, there is a good chance that your company is a sole proprietorship—that is, you are the only owner of an unincorporated business, or a business which is not legally separate from its owner. Like companies including partnerships and S corporations, sole proprietorships are “pass-through businesses,” which means that income and taxes are passed directly to the owner rather than to the business itself. This exempts these businesses from corporate income taxes—however, you will still need to pay a self-employment tax as a sole proprietor.
As your company grows, it is important to regularly review your business structure and determine whether it is the best fit. One factor to think about is liabilities—sole proprietorships and some partnerships have unlimited liability, which means the owners are responsible for all of the company’s taxes and debts. Business owners with limited liability, however, are only responsible by law for the funds they have invested into their company. By forming an LLC or corporation, you may be able to not only put your business in a more advantageous tax position over time, but also protect your personal assets.
Benefits of Working with a Financial Professional
Of course, there is more to tax planning than just reviewing your business structure and reducing tax liabilities. Some other things to consider include:
Keeping accurate records
Ensuring that your records are thorough and precise will allow you to make accurate decisions regarding deductions, as well as give you the evidence to defend them to the IRS if necessary.
Being proactive and strategic
Make sure to begin tax preparations well ahead of tax season in order to ensure that you have ample time to orchestrate the best outcome possible. It is also important to be strategic in your tax planning, focusing not only on how you can save this year, but throughout your business’ entire lifetime.
Mitigating risk
As a small business owner, fines and penalties accrued due to inaccurate tax filing may hurt your company far more than they would a larger corporation. In order to avoid these financial consequences, it is important to work with a financial professional to ensure that your tax return is accurate and compliant with all tax laws and regulations.
Deferring income and reducing tax liabilities
By deferring a portion of your income—that is, postponing the collection of money, which can be done through methods such as waiting to send out invoices—you may be able to place your business in a lower tax bracket for the year, reducing taxes owed.
Contact Estess CPA to Take Advantage of Our Expert Tax-Planning Services Today
As a small business owner, tax planning services are crucial to the current and future success of your business. They allow you to reduce tax liabilities, make informed decisions about your company’s future, and avoid the consequences of inaccurate filing or a lack of regulatory compliance. And when you work with Estess CPA, we can help you with all of this and more. Not only will we help you plan and prepare your taxes, but we are also available to answer any tax-related questions to assuage your concerns and help you expand your financial knowledge. So if you are ready to set your business up for success through tax planning.
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