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 makes the following tax planning tips worth knowing.

Invest In Useful Assets For Your Business

If your small business needs it anyway, investing in supplies and business equipment at the end of the year is an excellent way to enjoy deductions from your tax payable. Considering investments in qualified small business stock can offer significant tax advantages, potentially allowing for gains to be excluded from taxable income if specific criteria are met. 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 expect to enjoy higher taxable profits in the years ahead. Yes, investing in new equipment is an expense; however, since it’s what your business needs, think of it as a capital investment that will yield good returns.

Consider A Change In Tax Status

Small business owners have numerous options for structuring their businesses, such as changing from sole proprietorship to partnership or from partnership to limited liability corporation. Choosing your business structure is very important, as this decision can also affect how your small business will be taxed.

However, this strategy applies if you’ve been operational for a year. Then, after serious review and assessment, your business management team has decided 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 sure that a change in your tax status is the best option for your business.

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 economic situation of your small business, especially when you consider factors like their skills and level of expertise.

At most, you’ll want to ensure that the accountant you hire also takes time to update their tax knowledge and skills regularly. They should be learning constantly—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 the latest acceptable in taxation and accounting.

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 can fall victim to natural disasters 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.

For instance:

  • Local tax authorities can give you more time to pay off your debts.
  • Penalties or interest charges may be waived when 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.

Conclusion

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 their best 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. Instead, it’s about being more strategic with your business’s tax so you can enjoy higher income for this year.

  • About the Author
  • Latest Posts

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.