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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