If you own a profitable small business, you may feel like you are paying a lot in taxes. However, there are different strategies that can be used to minimize, reduce or put off the amount you pay in taxes. Implementing these strategies is known as strategic tax planning. If you have never heard this term before, you may have many questions about it. Here are a few frequently asked questions about strategic tax planning.
What is Strategic Tax Planning?
Strategic tax planning involves closely aligning the vision of your business with tax laws and regulations, helping to ensure you're always taking advantage of tax breaks and benefits that can be financially beneficial for your company. This means that you and an accountant can sit down together and determine how your business is expected to grow in the coming years. Based on that, you can implement strategies that will reduce your tax liability. This is different than ensuring that your taxes are done correctly and taking advantage of write-offs and deductions, as you plan to implement these strategies prior to the current tax year rather than after as is the case when you do your taxes.
How Can Strategic Tax Planning Help You Reduce the Amount of Taxes You Owe?
There are many different ways that strategic tax planning can help you reduce the amount of money your small business may pay in taxes. One of the ways this is done is by reducing the amount of your taxable income. Making donations and business investments are two of the ways that a business can reduce their taxable income. However, taking advantage of lesser known credits and small business benefits may also help to reduce your business income. Reducing the amount of the taxable income may also lower your tax rate but bumping you down into a lower tax bracket. This is why this can be important. Other ways to reduce the amount of taxes you owe through strategic planning includes taking advantage of all available tax deductions and credits, controlling the effects of the alternative minimum tax on your business, and maximizing your business entertainment expenses.
What are the Benefits of Strategic Tax Planning?
The biggest benefit to strategic tax planning is that it can help to minimize or reduce the amount of taxes your small business may have to pay. But there are also other benefits to strategically planning ahead for your taxes. One of the advantages is that strategic tax planning gives you some control over when you pay tax bills. In some cases, you may be able to defer tax payments or make strategic moves that lessen your tax payments now, while increasing them in the future. This may give you the capital you need now to grow or make purchases and allow you to make the larger tax payments when your business is more stable.
Another benefit to strategic tax planning is that you work with a specialist to put together a financial plan for your business. Strategic tax planning typically involves looking at least three years into your business's future and seeing where it should be financially. As a small business owner, you may have lofty goals, but they may be unrealistic. A strategic tax planning specialist can look at your past tax returns and business financials and put together a plan that shows what your growth is expected to be. This can give you realistic expectations for your company, show you where you are going, and can even be useful if you are trying to take out loans or get investors.
If your small business has been profitable for at least three years, it may be time to look into strategic tax planning. This can help ensure you are not spending more on taxes than your small business needs to be, freeing up more of your cash to expand your business. For more information, contact a tax planning company like Karla Dennis and Associates.