Tax preparation and filing are crucial for every small business, but so is tax planning. It is surprising how many small business owners tend to neglect this important activity.
It is not easy for Small Business Owners to devote time to tax planning. However, planning is a must to stop taxes from eating away a significant portion of your hard-earned income.
Tax planning is all about being proactive. Understanding and implementing tax-saving strategies early on in the year will set you up for a stress-free tax season.
So, shall we explore why a small business should do tax planning?
What Is Tax Planning?
Tax planning is the process of identifying and implementing techniques to reduce tax liability. Even small tax savings can provide small businesses additional funds for operations and investment.
For tax planning to be effective, it should be a year-round process. Businesses need a tax strategy to take advantage of every opportunity to reduce taxes.
Reasons for Tax Planning:
1. Reduce Tax Liability:
The IRS provides many deductions and credits to a small business. Often businesses miss out on these opportunities due to a lack of knowledge.
With tax planning, you can claim business expenses to the fullest. By following appropriate accounting methods and inventory valuation, a business can reduce taxable income.
Strategies like employing a spouse or a child can reduce taxes. Contributions to life insurance, health insurance, and retirement plans also offer tax benefits.
Investing in instruments like bank certificates, savings bonds, and treasury bills defers the taxes to a future period. All these strategies can offer excellent tax savings.
2. Better Use of Funds:
Tax planning develops financial discipline in a small business owner. Business owners make more informed decisions weighing every expense and investment. Being aware of the tax implications helps make appropriate choices.
Tax planning enables businesses to accurately predict their incomes and profits. A business owner knows how much funds are available after taxes. Thus, he can plan for investments in the growth of the business.
3. Avert Legal Issues:
Tax preparation and filing is a tedious process. Businesses need to have organized up-to-date financial records to file returns correctly. Often Small Business Owners defer tax filing to the last minute and make costly mistakes that increase their taxes. Sometimes Businesses also end up not filing within the deadline.
Tax planning makes the whole process organized. Implementing tax-saving strategies throughout the year makes complying with tax regulations easy.
Thus, businesses don’t run the risk of a tax audit due to discrepancies and payment of fines and penalties. The chance of litigation with the IRS becomes minimum.
Tax planning is a must for any business. It reduces the tax liability and leaves more funds for business growth. However, tax planning should be consistent throughout the year to yield results.
So adopt this good practice and see the difference in your business. If you need advice regarding tax planning and want professional help, contact us at FinAccurate.
If you would like to watch the video of this article, click on the link below:- 3 Powerful Reasons Why A Small Business Should Do Tax PlanningOther Accounting Related Information