Tax Planning For Businesses

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Using the proper tax planning strategies is essential for a small business. In order to minimize the amount of money that is paid to the government, a business has to plan out how to handle taxes far in advance. Here are a few tax planning strategies that can be beneficial to small businesses.

1. Utilize Expenses

A good tax planning strategy will make full use of offsetting income with expenses. This begins with having a good idea of how much money your company will bring in at the beginning of the year. With this information, you can effectively come up with a plan to maximize your expenses. If you know that you are going to make a certain amount of money, you should be able to spend enough on legitimate business expenses to offset much of the revenue. At the beginning of the year, you should come up with a tentative plan for this. Then, as the year progresses, you should adjust this to reflect your actual level of revenue. For example, if, after three months, you have made significantly less than you projected, you do not want to keep spending at the same rate. This strategy has to be frequently adjusted in order to maximize the benefits for your company.

2. Retirement Contributions

Another great strategy to maximize tax savings is to set up retirement accounts for your employees and make regular contributions. This is often done at the end of the year in order to maximize your deductions. Business owners can deduct the full amount of the contributions that were made into employee retirement accounts from their taxable income. If you have substantial profit and you are close to the end of the year, consider maximizing your contribution to each employee's account. Depending on what type of account the employees have, you will have to make sure that you adhere to the federal contribution limits.

3. Green Tax Credits

Small businesses can also take advantage of several federal programs that encourage green projects. By implementing certain measures in your business, you might be able to get tax credits as a result. For example, if you can offset your energy consumption through alternative energy sources, you can actually get tax credits in some situations. You can get tax credits for installing energy-efficient windows and new heating and cooling systems. Before implementing any changes, make sure that you adhere to the individual guidelines of each federal program.

4. Investment Considerations

If your company utilizes an investment strategy, you might want to consider looking at your portfolio before the year's end. If you have any losing investments that you could sell, this can help offset any gains that you have on the books for the year. You will also need to consider the impact of capital gains taxes if the investments have been held for more than one year. Consult an investment professional to make sure that you are considering your investment decisions correctly.

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Tax Planning Strategies

There are countless tax planning strategies available to a small business owner. Some are aimed at the owner's individual tax situation, and some at the business itself. But regardless of how simple or how complex a tax strategy is, it will be based on structuring the strategy to accomplish one or more of these often overlapping goals:

  • Reducing the amount of taxable income
     
  • Lowering your tax rate
     
  • Controlling the time when the tax must be paid
     
  • Claiming any available tax credits
     
  • Controlling the effects of the Alternative Minimum Tax
     
  • Avoiding the most common tax planning mistakes


In order to plan effectively, you'll need to estimate your personal and business income for the next few years. This is necessary because many tax planning strategies will save tax dollars at one income level, but will create a larger tax bill at other income levels. You will want to avoid having the tax plan made by erroneous income projections. Once you know what your approximate income will be, you can take the next step: estimating your tax bracket.

The effort to come up with crystal-ball estimates may be difficult and by its nature will be inexact. On the other hand, you should already be projecting your sales revenues, income, and cash flow for general business planning purposes. The better your estimates, the better the odds that your tax planning efforts will succeed.

Hidden within the labyrinthine course known as the Internal Revenue Code are valuable money-saving strategies overlooked or undiscovered by many business owners. At the same time there are misleading passages that have been the cause of millions of dollars mistakenly paid to the IRS. Dollars that should have remained in business owners pocket.

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