It’s no secret that even small businesses dread tax season. The hectic pace that accompanies the completion of one’s tax obligations isn’t something that anyone enjoys. Then there’s the sinking feeling of not knowing how much tax your company will have to pay this year.
Small businesses are under extra financial pressure to grow and be stable, so deductions in profits like tax payments can be a big blow to their budget. If you’re in Pennsylvania, this is where companies like Tax Preparation Philadelphia can help you with tax planning.
With efficient tax planning, your small business can maximize returns without evading the legalities of tax payments. Of course, you’ll have to hire an accountant, but it also pays to know some strategies. This is key to taking a proactive approach to your business.
For small businesses, every centavo counts. This fact is the reason why it’s worth knowing how to do the following tax planning tips.
1. Invest In Useful Assets For Your Business
If your small business needs it anyway, then investing in supplies and business equipment at the end of the year is a good way to enjoy deductions off your tax payable. The only premise is that those supplies and business equipment should be used after purchasing them.
This first tax planning technique is wise, especially if you’re expecting to enjoy higher taxable profits in the years ahead. Yes, it’s an expense to invest in new equipment. However, since it’s what your business needs, then think of it as a capital investment that will yield good returns in the future.
2. Consider A Change In Tax Status
Small business owners have numerous options for which they can structure their business, like from sole proprietorship to partnership, or from partnership to a limited liability corporation. It’s very important to choose your business structure, as this decision can also impact the way your small business will be taxed.
However, this strategy applies if you’ve already been operational for a year. Then, after serious review and assessment, your business management team has decided that it’s time for a structural change. For instance, it’s possible to choose partnership over sole proprietorship as a more advantageous business structure.
Nevertheless, before changing your tax status, consult with a tax professional first. That way, you can crunch the numbers and be certain that a change in your tax status is the best option for your business at the moment.
3. Hire The Right Accountant
Your accountant is that all-important professional responsible for everything related to your financial statements and taxes. Therefore, it’s a choice that you shouldn’t take lightly. Hiring the right accountant can make or break the financial situation of your small business, especially when you think about factors like their skills and level of expertise.
At most, you’ll want to ensure that the accountant you hire is one who also takes time to regularly update their tax knowledge and skill. They should be learning all the time—on the go with new seminars and conferences.
Furthermore, the more updated your accountant is with the latest amendments and rules in taxation, the higher the likelihood that your business will have good tax planning. This is because you know with certainty that your accountant’s methods are truly the latest acceptable ones in taxation and accounting.
4. Make Timely Reports For Fortuitous Events Like Natural Disasters
While no one ever wants to become a victim of a natural disaster, this fact is also something that nobody has control of. Individuals and businesses alike can fall victim to natural disasters during times when they least expect it.
The good news, however, is that if your business has become a victim of one, you’re entitled to some deductions and reliefs under the tax law. This fact is something your accountant should make you fully aware of.
- Local tax authorities can possibly give you more time to pay off your tax debts.
- Penalties or interest charged may be waived, during the time you’ve been affected by the calamity.
- You’ll have more time for the re-issuance of tax returns and notice of assessments.
The reliefs can vary from one locality to another. Be sure to check what your local taxation laws state.
Starting and running a small business is already hard enough, especially for first-timers. Add up to this the complexity of filing taxes annually during the tax season. More than the work that goes behind it, entrepreneurs also wish to do the best that they can to have more control over the amount paid for taxes.
As you can see from the strategies above, that’s what tax planning is all about. It’s not about illegally evading the required payments. Rather, it’s about being more strategic with your business’s tax, so you can enjoy the possibility of higher income for this year.
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Samantha is an HR practitioner who has worked with several companies to help them improve their HR practices. Samantha has gained decades of experience in handling all HR facets that include managerial relations, labour relations, training and development, recruitment, and compensation and benefits.
When Samantha is not busy at work, she writes articles about the importance of effective HR practices and why startups should always prioritize this area of the business.