Accounting / Bookkeeping Basics: Tax Management Strategy / Tax Planning

Choose the right type of business
First off, start by picking the right term to fit your business into. That is, be sure whether you want to be a sole proprietor or an LLC. You have to pick the right one in order to pay the right tax. Don’t be under the impression that you can choose whatever you think sounds good. You have to pick something that will help you avail tax benefits. For example, a sole proprietor can take advantage of many deductions while filing for taxes whereas members of an LLC will not be held personally liable to any debts that the company owes.

Work opportunity tax credit
Work opportunity tax credit refers to a tax deduction that you can avail for hiring a war veteran or someone that has faced significant difficulties in finding a job to suit their cadre. You can show the IRS their employment letter and also the salary that you pay them. The amount paid will be deducted from your tax. There is a limit to how many you can employ or use as a means to reduce your company’s tax.

Retirement benefits
You can offer retirement benefits to your employees which will help you save on taxes. You must choose the best plans that suit your business. Retirement benefits can range from providing a monthly pension to paying monthly bills that your employees might incur after they retire. So, you have to choose the best plans and help save on a large amount of taxes that you might have to pay to the IRS.

Unify
If you have a slew of companies, then you can consider bringing all of them under a single roof, as that will help you pay a unique tax. You don’t have to worry about filing different papers for each individual company. You can file for just one and be done with it in no time at all. You can in fact, offset the losses of a company with the profits of another. You can also increase the number of deductions that you make. Doing so will greatly help you remain with a large profit at the end and might not have to pay up as many taxes.

Independent contractors
There is an advantage to employing independent contractors as opposed to employees. If you are running a business or company, then you can consider employing independent contractors, as they will help you avoid paying payroll taxes. This is great for all those small business that are looking to capitalize on small profits. You can also employ freelancers if you like.

Hiring family
It is a good idea for you to employ your children and family members to work for you. Doing so will help you avoid paying them an allowance and you can deduct their salaries from your tax returns. It need not always be your kith and kin and can be cousins, aunts, uncles etc. This is especially beneficial for sole proprietors. They will not owe any social security or Medicare taxes on their children’s salaries, which will prove to be quite advantageous.

Write off assets twice
Better known as a gift lease back, you can write off an asset like a vehicle twice. Like a vehicle that you use for your business, which is fully depreciated. Its market value stands at $15,000. You decide to lease it out to your spouse for $500 a month. You can then avail a benefit of
$6,000, which can be deducted from your taxation.

Travel/ medical expenses
You can take advantage of travel and medical expenses reimbursements. And it is not just yours that you can reimburse, you can reimburse your business partner’s, spouses, children’s, dependent’s etc. You can produce appropriate receipts and avail the deductions.

Renting your house
If you own a house, then you can rent it out to an S corporation and earn tax-free income from it. You can rent it out to a company for about 14 days a month to conduct meetings and seminars etc. and not declare it. But remember there is a limit to how many people can occupy it at any given point in time. Also, you have to specify to the company that there can be no entertainment provided during the meetings. If you own an S corporation then you can use your house for meetings and deduct rent to yourself from company accounts.

Telephone/ Internet bills
It is a common practice among sole proprietors to use their phone for professional and personal uses and then deduct the phone bill from their business taxes. You can also maintain two different phones if you like and use the bills to avail a relief. The same extends to any stationery and other things that you buy for your company on a regular basis.

Tax Planning
All entrepreneurs that are planning to form their startups and small business owners must understand the basics of taxation to act accordingly, with the tax laws implemented by federal and state authority.Small businesses can try to obtain the help of tax professionals and experts to ensure a successful tax return. Moreover, they can also adopt various tax planning strategies and tactics throughout the financial year for better  returns.
If anyone can’t afford one, then the Internal Revenue Services and State Revenue department accommodates a wide variety of resources available to them to assist the small corporation owners with tax planning. Tax planning can be defined as the activities that a firm might adopt to maximize its tax liabilities to increase the chances and to ensure to gain all possible allowances, deductions, exemptions, and exclusions available. In short, it is the process of working together in the most tax- efficient manner to reduce the total tax bill a firm is liable to pay in a fiscal year.Furthermore, it can also be referred to as a component of an analysis of the financial status a business might have in their current situation or with the upcoming plans drafted along with the forecasted aim of increasing return on capital employed.
Calling tax planning as an important part of a financial plan would not be wrong. Because somehow a business manages to escape from one tax bracket to another, this leads to a reduction in tax amount or a fall in the tax rate it is liable to pay. As well as it contributes to the maximization of the ability of an entrepreneur to draft an excellent retirement plan, and are also crucial for the success of the business.

How Tax Planning Works
Tax planning covers up many issues faced by most of the businesses. Especially when planning and forecasting future financial positions of their entity. The process includes several considerations such as the timing of income, size, when the purchase will be made, and planning for other expenditures against the current year earned revenue. It is also decided in the process that for future expansion which sources of finance and investment would be selected and aims for the most suitable retirement plan.
All the important decisions made in this planning process directly or indirectly affect the tax filing status of firms and deductions to create the best possible outcome.

Types of Taxes to be Considered in the Tax Planning
Also, mention before, tax planning strategies are typically employed to help a business in achieving its financial and non-financial business goals and objectives. There are many benefits that an organization is likely to gain through tax planning, and that is one major reason why experts emphasis a lot on its importance, especially in the case of small businesses.
In most countries, the tax laws and allowances keep on changing from time-to-time. Hence, it is always advisable for businesses to regularly review their strategies. The tax planning process might not affect your whole tax structure, and rather there are few areas where the process of an expert might be able to benefit your business, reducing the amount of tax liability.

Capital Gains Tax
Planning for the capital gain tax means taking a number of things into consideration, such as which asset is being to and who is going to be the next owner of the asset. In such circumstances, you may require the assistance of a tax planner to do the calculation for you, and notify you about the assets that are exempted and can lead to a reduction in the amount of tax payable.

Corporate tax
Usually, corporate tax or the tax on profit is considered to be one of the higher costs a profitable company has to bear. Therefore, corporate tax planning is essential for both small and large businesses, thus allowing them to retain a higher margin of profits or extracting more value from the business.

Corporate Tax Planning Includes
- Deferring income or profits
- Bringing forward costs
- Capital allowances

International Tax
No matter, if you are operating a business globally, or are planning to start one in the country, you are restricted or bound to follow the limitations set by the tax laws. International tax planning might help you to legally avoid such laws and can help you save local taxes as well as the taxes levied on international business.

International Tax Planning Includes
- The due date of tax bills to decide when to pay
- Using the tax deferral opportunities and tax rebates
- Gaining the foreign tax credits and incentives
- Avoiding the case of double Taxation Dividend/Year-end Tax Planning

Are you planning to hold back a significant profit margin in your company, but don’t know how to do that? Then you may require a tax expert or planner who could advise you on how to maximize your return by decreasing the amount of tax liability. Many suggest that it may be wise to draw out a large amount as dividends given to the owners. However, tax consultants will be able to advise you on the most tax- efficient manner to reward yourself and to your employees.

Inheritance Tax
Your successors or family members may be required to pay inheritance tax once you are dead, which may reduce the amount of your estate or wealth you have accumulated in your life that ends up being passed on to your loved ones or legal heirs. There are many solutions and tactics available to avoid the inheritance tax such as;
- Giving your property and acquired assets as a gift to your loved ones
- Downsizing
- Remortgaging & insurance options are available Tax Planning for IndividualsIt is only a myth that tax planning is the best option only for big businesses. Rather private individuals can also retain their accumulated wealth through adopting an intensive tax planning process.

Individual Tax Planning Includes

- Income taxes
- Gifting children
- Gifting family members
- Property
- Pensions

Why is Tax Planning for Small Businesses Important?
Many small businesses and entrepreneurs with lack of experience consult from taxation agencies and experts to adopt a tax-efficient strategy that can help them with the reduction in the tax amount they are liable to pay. In any circumstance, these professionals will insist you to focus more on tax planning. It is because it is the most prominent and useful tool to be used to reduce the amount of your taxable income. The process of tax planning would result in lowering the tax rate subject to your income or earned profit by moving it from one tax bracket to another or from the high rate to a lower one. Moreover, it would allow you to utilize any tax credit or incentive that may be available.

Allows You to Make Smart Year-End Decisions. Till now, you have learned a lot about taxes, its different types, different systems, and structures. Being an owner of a small business, now is the time to learn more about tax planning. It would be much better if, as soon as possible, you could realize the importance of tax planning in your financial operations, increasing the profitability and returns of the business.You can determine the importance of tax planning by the fact that it plays a crucial part in getting your financial records and data up-to-date, especially at the end of a fiscal year, when you have to file taxes for your earned income against expenses. It also allows you to see where your corporate profits and losses stand, enabling you to make the most effective decision in less time. A smart decision can result in the possible minimization of your tax liabilities.

However, many business owners today are less likely to  take advantage of their employed agents and accountants for tax planning purposes. Anyone who is not paying attention or doesn’t consider tax planning as an important step, as a result, he or she might miss the tax-saving opportunity, which needs to be implemented before the fiscal or financial year ends.
You will get a head start on your taxation. The word of head start is used, in the sense that to draft an effective tax plan, first of all, you would review your books of accounts. Next, you will set all the records and data on the track.
Therefore, in the process of tax planning, you might be able to do some of those tasks that in other cases would have still been neglected. In the situation, you might also create a list of items that you are going to need at the beginning of the next year, and so now you have enough time to gather the information, instead of creating a fuss in the last moment.
The list of benefits, contributing to the importance of tax planning doesn’t just end here, rather there are way too many. So it is wise not to ignore it.

Common Mistakes Made by Small Business on Tax Planning.
The owners of small businesses are often seen to take on a lot of burden with the whole organization upon their shoulders. It is because they are not in-charge of only one but of multiple departments, whether it is marketing, employees and staff management, development of product, or accounting practices. They are always found busy working in their business and so they are left with less time available for them to work on the management of their corporate taxes.
Amongst the most recurring mistakes that the owners of small businesses do when preparing a tax plan is to treat it as an exercise that is to be done after the year-end. Many of them do their plan for their taxation before the end of the year, and consequently, it creates no real change and left no potential opportunity to affect the taxable income. It might be true for those who pay their taxes on the cash basis as in this, the timing when the cash receipts are received or what is the due date to pay them and payment to vendors can potentially create a significant impact on the current year's income. For example, taxpayers who pay on a cash basis have the opportunity to deduct expenses that are prepaid until they do not exceed the duration of 12 months or beyond the end of the following tax year.
Another mistake done by the owners of small businesses is when they have to face failure in recognizing other important necessary requirements that exists, and are related to their corporation. They are required to register their vendor for sales tax, have to  prepare the annual forms such as the one 1099-MISC for their vendors, and should appropriately report, highlighting the difference between their employed staff members and subcontractors. If a business fails to prepare their tax filings and plans according to the requirements that relates to the matters mentioned above, then as a result, it can expose its corporate owner to the unexpected burden of tax liabilities.The rate of tax subject to your income or the tax bracket your corporate profit lie depends on the business structure or the type of corporation you own and operate. Likewise, the procedure of tax planning also depends on your corporate structure.

Thus, the smarter you plan for taxation, the lesser the amount or the rate of taxes you will be liable to pay, but it’s not one time, rather it’s an ongoing process that is going to take you enough time. If you do not understand or think that you cannot retain the major part of it, then it is suggested that you should consult from a tax expert and professionals or should conduct multiple meeting session with your tax advisor and professionals within a single year.
You should present your recent or latest financial statements and should have a discussion on your creative ideas regards the upcoming projects, purchases, staffing, and other changes. It will enable your employed or hired tax advisor and professionals that when and how they can help you in drafting an effective tax plan that can enhance your retained profit in the current financial year and in the future.