Minimizing expenses is as important as generating revenue and this where tax planning plays a critical part for every business. Tax planning involves devising and implementing various strategies to minimize the total amount of taxes paid for a certain period.
Importance of Tax Planning for Small Businesses:
Having an efficient tax plan in place and enough time in hand to efficiently implement it ensures coherent functioning of all financial elements with maximum possible tax-efficiency. This minimizes the tax liability and saves money to improve the working capital which is crucial for a small and medium business.
However, the majority of small business tend to wait until the penultimate day, making the entire season a gruelling time, burning the midnight oil to scour the budgets and the spreadsheets to account for every dollar. If you are a new business, the whole rush during this season will stress you out with the audits and instead of saving your hard-earned money, you might end up paying more after you have spent all your time, money and resources in the audit process.
Tax Planning & Tax Preparation by Back Office Accounting Firms:
Working with remote accounting firms like Back Office Accountants that can help you with remote bookkeeping, accounting and tax planning can lay a standard process and bring due diligence into tax planning with efficient tax-plans and tax-saving strategies.
However, for a business owner, it helps to have a solid understanding of the basic tax structure and keep track of the updated tax provisions granted by the government, especially during this ongoing COVID-19 pandemic. But don’t worry if you are only starting out , Back Office Accountants is here to help you with basic information guides on tax preparations, tax updates for 2020-2021 and tax-saving strategies for small business with the series of blogs starting from today.
In this blog here we are going to start with importance of tax planning and basic tax planning tips for small businesses and in the coming weeks, we are going to delve into the new rules and regulations, tax updates and provisions for 2021. So, if you are a business owner seeking an efficient tax planning process, here are basic yet key aspects you must keep in mind:
Ensure the right business classification: Choosing the right business classification is one of the most significant steps to benefit from the right tax provisions. Sole proprietorship/partnership, Corporation, Limited Liability Partnership (LLP), Limited Liability Corporation (LLC) are the common major classifications. And it is possible that your business is misclassified and this miss-classification could mean additional tax burden on your business. You can contact a tax professional to get your business correctly classified and that will be the first step to make yourself aware of the tax rules, regulations and updated tax provisions and plan your tax strategies accordingly.
Plan your expense and income streams accordingly: Higher expenses in the current year can mean lower taxes and higher the income, steeper the taxes. So you can simply account the expenses of the business to the current year and push any new income to the next tax year to strategically lower your taxes while following the rules. Proper tracking of all the transactions and having a tax professional at your service will greatly help unearth other creative strategies to fully benefit from the tax provisions available.
Track your expenses regularly: While it could have been easy to track your expenses when you are starting, it can be quite a hectic task to have all them audited at once during the tax season, as your business grows. Keeping track of your expenses regularly puts you at top of the game can help you benefit from the tax provisions as you are not caught up all day with the tracking all the expenses during the tax season.
Tracking expenses at the end of the day or week without fail help you keep your books up to date. But be mindful of keeping the business and personal expenses as independent as possible to avoid confusion while tracking. Keeping a separate bank account and using a separate business credit card for all your purchases can help you to do so. If your volume of sales is high and you are falling short of keeping track of your transactions, we advise you to seek services of a professional bookkeeper. Our remote bookkeeping and accounting services can help you in this regard.
In addition to the above, you can claim tax deductibles on employee benefits like bonuses, retirement plans or even on expenses for company events like retreats. While these are only basic tips there are plenty of strategies to benefit from the tax provisions and hiring a tax professional can help you with his expertise to completely leverage them. Especially with the new tax benefits and assistance programs for small businesses granted under the CARES Act, it is very important to seek services of tax experts for your tax filing and preparation. At Back Office Accountants we have been helping our small business in all types of accounting services from bookkeeping, bank and credit card reconciliation, accounting to tax planning and preparation, and we can help your business too. You can contact us here: https://www.backofficeaccountants.com/