Posted on November 21st, 2023

When you have specific business goals that you want to achieve, it’s essential to have a strategy in place to ensure you save time and resources. This is true for all areas of a small business, from marketing and production to business tax planning. Being well-versed in business tax planning, income tax, and business income strategies can help avoid missing cost savings opportunities and overpaying your tax obligations. Keep reading to discover seven actionable tax planning ideas and give your business the financial boost it deserves!

What is a Tax Planning Strategy?

A tax planning strategy might sound intimidating if you’re a new small business owner. Many details go into small business taxes, such as knowing how to pay freelancers and independent contractors and understanding the basics of tax deductions. However, you can think of a tax planning strategy similar to how you file personal taxes. It’s generally not just one activity – it can be a combination of different tactics that will ultimately save you money. Our tax advisors break down small business expenses, business structures, business income deductions, tax cuts, write-offs, pass-through taxation, and other related. financial planning to help you with the end of the tax year.

What’s the Goal of Small Business Tax Planning?

It’s no secret that paying taxes can be a nuisance. Even though everyone deals with it, seeing how much you owe during tax season after a year of hard work can be discouraging. Whether you think of an individual taxpayer, a small business owner, a startup, a sole proprietorship, a limited liability company, or a C corporation owner, you probably want to reduce the taxes you owe yearly while ensuring you fulfill your obligation. Planning your tax strategy aims to lower the federal and state taxes you must pay. The money you save when filing your taxes can then be used to fulfill other business needs and goals. 

Top 7 Business Tax Planning Strategies

1. Claim Your Deductions and Credits

It might be tempting to rush through your taxes and pay whatever you owe without considering things like tax deductions and credits. Some business owners may think their deductions and credits must be more significant to make a difference, but they can bring much value to your small business tax planning. You can maximize your deductions and credits in several ways through things like charitable donations and postponing your income. 

2. Consider Your Entity Structure

One of the foundational elements of business tax planning is verifying your business entity structure. Businesses come in all shapes and sizes, offering different benefits and disadvantages. An LLC provides more flexibility in its operations by managers or members. There are also termination fees and self-employment taxes that may be applicable. Although your business is already registered as one entity type, it may be worth considering a change, such as converting from an LLC to a C corp. It’s always best to research business tax advisory services and speak to an expert who can guide you. 

3. Support a Charitable Organization

Lowering your adjusted gross income is a popular strategy for small business tax planning, and an easy way to do this is by donating to a charity. Many charities will provide a year-end statement to their regular donors, but keeping track of your giving through itemized deductions is still essential. The IRS offers more information on charitable contributions. 

4. Save for Retirement

Even if retirement seems like a long way off, saving now and supporting your future self is critical, and retirement accounts can help small business owners. Consider offering your employees a retirement plan, which can provide additional tax benefits by lowering your taxable income. Small business owners can offer a 401(k) plan or a simplified employee pension (SEP) plan. It’s important to note that your employees are not required to contribute to a retirement plan. They may instead choose to save for retirement through a Roth IRA, which cannot be deducted from their taxes. Saving for retirement is just one of several tax planning ideas to help your small business save money and understand your tax bill.

5. Offer Employee Benefits

Aside from increased wages, most employees appreciate an employer offering good benefits. These can be healthcare-related benefits like health insurance or dental insurance or reimbursement for transportation, tuition, or federal student loan payments. The CARES Act states that employers can contribute up to $5,250 to their employees’ federal student loans, which will be tax-free. 

6. Sell a Losing Investment

You may have heard the familiar phrase, “When life hands you lemons, make lemonade.” Thinking about a poor investment and bad debts may be challenging, but it can be used to your advantage when planning your tax strategy and navigating tax laws. If you decide to give up and sell a losing investment, you can categorize this as negative income or a capital loss. This tactic can lower your income and reduce your tax burden. The maximum amount for a capital loss is $3,000. Any amount over that can be applied to the following year.

7. Beware of Scams

Most tax advice for business owners focuses on deductions and ways to save money, but it’s also important to be aware of the different tax scams. Predators are constantly trying to deceive taxpayers in a variety of ways, often by impersonating the IRS and demanding immediate payment. The IRS will never call, text, or email an individual and request payment or personal information. When in doubt, contacting the IRS directly through their website is best to verify any notifications you receive.

FAQs About Tax Planning for Small Businesses

Do I Need to Hire a Small Business Tax Planner?

Planning your tax strategy is something you can attempt yourself, but you likely will get different results than working with a professional. Partnering with a certified public accountant (CPA) ensures you get quality service from someone committed to maximizing your savings. 

What Are the Disadvantages of Tax Planning?

The main drawback of tax planning is the time and effort needed to optimize your savings. As you start going through these strategies, you may need to change your business operations. Small business tax planning doesn’t guarantee huge savings, and some business owners may want to put their efforts elsewhere. 

How Much Does Tax Planning Cost?

The cost of tax planning services varies based on your business’s intricacies, such as the number of employees or the range of deductions involved. You can view some standard packages and pricing before scheduling a consultation.

Maximize Your Savings by Partnering With Tax Planning Professionals

It can be challenging to know how to plan for a company, especially navigating the challenges of income tax, tax credits, tax brackets, tax returns, tax rates, income tax rates, and tax savings. A small business has several variables that can affect its tax liabilities. It helps to work with a tax professional who can advise you on the best business tax planning strategies. Our team is skilled at taking a proactive approach to tax planning by asking the right questions to understand your goals. When you plan and think about your tax obligations, you’ll be better prepared to make the system work to your advantage.