Tax Planning for Small Business Owners

Tax planning is a process of looking at various tax options to determine when and how to conduct business and personal transactions so that taxes are eliminated or considerably reduced.

Many small business owners don’t think about their taxes until they’re scheduled to meet with their accountant. It’s important to understand that tax planning is an ongoing process that requires good tax advice. You should review your income and expenses monthly, and meet with your CPA or tax advisor quarterly to analyze how you can take full advantage of the provisions, credits and deductions that are legally available to you.

Although tax avoidance planning is legal, tax evasion – the reduction of tax through deceit, subterfuge or concealment – is not. What typically sets tax evasion apart from tax avoidance is the IRS’s finding some form of fraudulent intent on the part of the business owner.

Tax Planning Strategies

There are countless tax planning strategies available to a small business owner. Some apply to the owner’s individual tax situation, and some to the business itself. Tax strategies aim to:

  • Reduce the amount of taxable income
  • Lower your tax rate
  • Control the time when taxes must be paid
  • Claim any available tax credits
  • Control the effects of the alternative minimum tax
  • Avoid 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. Many tax saving strategies will save tax dollars at one income level, but create a larger tax bill at other income levels. Avoid having the right tax plan made wrong by erroneous income projections. Once you’ve determined what your approximate income will be, you can estimate your tax bracket.

While estimating your tax bracket may be difficult and inexact, you should already be projecting your sales revenue, income and cash flow for general business planning purposes. The better your estimates, the more likely your tax planning efforts will succeed.

Alternative Ways to Save on Business Income Taxes

Deducting entertainment expenses can be a fun and rewarding way to save on your taxes. However, there are some important guidelines to consider when including them on your return. In order to qualify, business must be discussed before, during or after the meal, and the surroundings must be conducive to business discussion. For example, a small, quiet restaurant would be an ideal location for a business dinner. Be wary of distracting locations such as theaters, ski trips, golf courses, sporting events and hunting trips.

Many businesses also qualify for automobile deductions. An automobile is quite an expense, especially if you use more than one for business. Luckily, the IRS offers a mileage deduction rate. To figure your vehicle’s business use, divide business miles driven by the total miles driven. This can be done for each car that’s used for business purposes, resulting in significant deductions. In order to be effective, remember to keep a constant mileage log. Consider meeting with a professional to determine the most effective way of tracking mileage and other costs.

The home office deduction is a great way to increase your bottom line when you work at home. While it can be difficult to navigate, the savings are well worth the work. Here are a few tips for home office deductions that can significantly lessen the stress of tax season:

  • Prominently display your home address and phone number on your business cards
  • Have business guests sign a guest log book when they visit your home office
  • Deduct long-distance phone charges
  • Retain receipts and paid invoices

Make sure that you qualify for the home office deduction before you start deducting items on your return. Consider meeting with a tax professional for further deduction advice.

Our Tax Planning Services

Our tax planning services allow you to successfully and legally reduce your tax liability. We go beyond compliance and proactively recommend tax saving strategies that maximize your after-tax income. Businesses and individuals pay the lowest amount of taxes allowable by law because we continually look for ways to minimize your taxes throughout the year, not just at the end of the year.

Remember, we work for you, not the IRS. Many of our clients save money through careful planning and legitimate tax strategies. Contact us today for more information on our Tax Planning Services.