How does your small business reduce its tax burden? There are numerous tax strategies for small business owners, but none work without a proactive tax plan. Today we’re going to touch on the main benefits to planning a small business tax strategy, and some examples of strategies professionals use year after year.
Why does proactively planning for your taxes benefit you?
We understand that many small business owners are extremely busy. However, tax filing season is not the only time you need to be thinking about taxes. Your financial success can depend on you managing your taxes throughout the entire year, not just preparing your official return. Check out these three main benefits to proactive planning.
- You can manage any liabilities before they hurt you.
- You can reduce your total tax obligations.
- You can maximize your yearly deductions.
What does proactive tax planning involve?
Proactive planning includes maintaining accurate records, choosing the right business entity, running financial reports, and more!
Expert tip:
Taxes can be complicated. Consider outsourcing tax planning to a CPA firm who specializes in small business. The cost may pay for itself with additional deductions and reduced tax obligations!
Check out some of our favorite small business tax strategies so you can make sure you’re prepared all the time – not just tax season.
1. Select the right business entity.
Different business structures come with different tax implications. The type of entity you pick can determine how you pay your taxes each year. A CPA can help you decide if you should switch your entity based on your current financials.
Find out why we recommend NOT switching to a C-corporation in 2018!
2. Use specialized software for accounting records.
Great software will save you time, keep accurate financial records, and simplify the tax return process. We use QuickBooks for all of our clients! Here’s 9 reasons why we love it.
3. Ensure you’re paying employees and sub-contractors correctly.
Audit your current system. There are many red flags throughout this process that can spark the IRS’ attention. Set some time aside to properly pay and report employee earnings before it’s an issue.
Learn what categories of evidence the IRS uses to determine an employee’s tax status here.
4. Delay your income and pay your expenses early.
This could mean waiting to pay yourself until January or accelerating the number of tax-deductible expenses you pay before the end of the year. There are many ways shifting your cashflow can help you on your tax return.
5. Find additional deductions your business is qualified to receive.
There are likely little-known deductions you qualify for but haven’t requested on your tax return in the past. Here are a few examples of small business deductions:
- The full amount of contributions made to employee retirement accounts
- Rental property passive income and expenses
- Home office deductions
- Bonus depreciation deductions
More deductions equal a smaller tax bill, so add as many as you can!
6. Make an appointment with an experienced CPA sooner rather than later.
The tax code is so immense that it takes a professional to really understand how to maximize the law to your advantage. If you truly want to accomplish the 3 main benefits of proactive tax planning – you need to start working with a CPA as soon as possible.
A CPA will research your business and tax records to decide on a tax strategy, and then help you implement that strategy throughout the entire year. The amount of money they save you each year could easily exceed the amount you spend on their service.
If you have questions about any of the above tax strategies for small business owners or you’d like to share a strategy we didn’t mention, please let us know in the comments below!
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Even if you aren’t worried about tax planning, there are many other reasons you should be seeking a CPA’s assistance. Take our free quiz, ‘Is it time to hire a CPA,” to discover if you should be seeking help for any other reason.
