Every citizen has to pay government taxes, whether you’re a corporate worker, part-timer, or small business owner. However, there are strategies that you can use to plan your taxes and get the most out of the money you are receiving. With tax planning, you can strategize how you use your revenue to save on taxes. Proper tax planning also helps you reduce tax penalties, get the most out of your tax deductions, keep your financial documents sorted, and plan for the future.
Being a small business owner and entrepreneur, it’s a given that you’ll always be planning your taxes. You have to be prepared for year-end tax seasons and audits. With that in mind, Mount Pleasant NC CPA Susan Gordon Lee shares 4 tax planning strategies for your small business:
1. Consider a business restructure.
For business, there are different ways in how taxes are being calculated and filed. It’s different for sole proprietors, partnerships, Limited Liability Company (LLCs), S corporation, or C corporation. If your business has grown and you can elect to change your tax status, you can change your LLC business into a C corporate business. There was a recent tax cut on corporate taxes so you’ll get better savings by switching to a different tax status. You’ll also be switching to a status that better suits and benefits your business. Before all this though, it’s better to consult a tax professional who can help you compare numbers and do a tax analysis.
2. Accelerate or defer income.
Changing incomes or money that comes and goes into your business is a good way to strategize your tax planning. This is how it works; if you have a client who you haven’t invoiced in 2021, you may want to wait till 2022 to send your invoice and collect payment at that time. This ensures your 2021 tax to be lower since the payment falls on the 2022 bracket. However, you may also accelerate the income by sending the invoice in 2021 and collecting the payment so it falls under the 2021 bracket and you’ll have a decrease in numbers by 2022. This also works with expenses on your business. Planning out how your money comes and goes is a great strategy to maintain your finances.
3. Track your income and expenses.
Tracking your expenses can help you out when planning your taxes. It’s also important to keep track of your expenses and income since every expense that you make for your business will be liable for taxes. To track your income and expenses, you must keep the following documents:
- Gross receipts
- Purchases and expenses.
- Travel, transportation, entertainment, and gifts.
- Assets.
- Employment taxes.
4. Contribute to retirement plans.
One good strategy to reduce taxes on your income is to contribute to retirement plans –for employees or business owners. Business owners have a lot of options for plans that they can contribute to. This is an advantage to your business since you can deduct retirement contributions from taxable income and it secures investment for your business as well. Retirement plans also help keep your employees and attract potential ones.
Takeaways
You must strategize your tax planning to keep your business afloat and maintain your financial stability. Keep these strategies in mind for your future reference.
Need financial advice? Mt Pleasant North Carolina Accountant Susan Gordon Lee can lend you some tips.