Tax planning is a vital element of any business and involves delving into various tax options to see if it’s possible to eliminate or reduce, taxes owed by conducting business and personal transactions in a certain way.
While some small business owners are reluctant to get too involved in tax planning, and simply wait until they are due to meet with their accountant, it’s important to understand that the whole process should be ongoing. Your income should be reviewed and assessed regularly – monthly is ideal – you should meet with your accountant or tax advisor at least every quarter to analyse the ways in which your business can try to take advantage of the provisions, credits and reductions that are legally available.
Strategies for planning your taxes:
There are a wide range of tax planning strategies available to small business owners, but they should be structured in such a way that at least one of the following goals can be achieved:
- Lowering the amount of taxable income
- Lowering your tax rate
- Having some control over when the taxes are due
- Claiming tax credits that are available to you
- Being able to avoid the most commonly made tax planning errors
Most tax planning strategies are only effective if you can give an estimate of your personal and business income for the coming few years, since a lot of strategies can help save you dollars on one income level, while giving you a bigger tax bill on other income levels. Should you struggle to do this alone, your tax advisor will be able to help give you advice and guidance.
Some other ways to save money on your business income taxes:
It’s often overlooked as a tax planning strategy, but deductions for entertainment expenses can add to your taxes and save you money. However, there are some important factors to consider when including them on your return, such as the fact that the business must be discussed before, during, or after any meal that has been deducted. The meal must also have taken place somewhere that is conducive to a serious business-related discussion, as is the case with meetings. Be warned that documentation of any entertainment expenses must be provided for the IRS.
For those of you have ownership of an automobile, or more than one, the IRS have recently introduced a new mileage deduction rate, of 36 cents per business mile, 14 cents per charitable mile and 12 cents per moving/medical mile. Including both cars in your deductions can also help ou to save money on your taxes and is allowable provided you can calculate the business mileage, which is a figure usually reached by dividing the business miles by the total miles driven. However, you must keep an accurate and consistent record of all mileage, and again, your tax advisor can help you with this.
For a wide range of other business tax planning tips, consult with a tax professional at the earliest opportunity to avoid missing any deadlines, and to be aware of any recent changes to tax laws.