As any experienced small business owner already knows, the primary goal of small business tax planning is to make the most the money the business is already generating. How an accountant achieves that goal depends on the type of business, the source of its income, and a myriad of other factors.
Staying Out of Trouble
Generally speaking, effective tax planning aims to eliminate or considerably reduce the amount of federal, state, or local taxes your business owes by planning when and how to conduct day to day business activities. Unfortunately, while it is perfectly legal to plan business activities in an effort to avoid certain taxes, it isn’t legal to carry out business in a way that evades taxes.
The number one goal in small business tax planning, therefore, becomes staying out of trouble. That’s where tax professionals such as accountants and attorneys come in. Doing your own tax planning without the benefit of an experienced professional is like skating on thin ice; a wrong move could prove dangerous.
Avoiding Common Mistakes
While many small business owners completely disregard taxes until the time comes to file a return, even those who participate in tax planning are prone to making mistakes that cost them in the long run.
One of the biggest mistakes small business owners make is missing out on available tax credits, loopholes, and deductions that could lower their tax burden and keep more money in their pocket. Another common mistake is waiting until the last minute to consult with a tax professional. Good small business tax advice can help steer an entrepreneur in the right direction before taxes come due, giving them more time to take steps that will lower their tax burden in the first place.
Putting Business Income to Better Use
Money that otherwise might have been paid in taxes could be put to better use in the form of valuable business-related deductions. For example, a small trucking company could significantly lower its taxable income by investing in a new truck or a better communications system and writing it off at the end of the quarter. In turn, that new piece of equipment could be used to generate more income, which could then be applied to more equipment. Using tax planning in this way could substantially contribute to your company’s growth.