Five Tax Planning Strategies For A Small Business


Small business owners frequently seek methods to reduce their company’s tax obligation.

This could involve reviewing your firm’s current financial status and making changes to your tax plan, utilizing tax-friendly pass-through rules or establishing a retirement program for both you and your staff.

Accountant Vinay Navani of WilkinGuttenplan suggests considering transferring more of your business out of your estate due to upcoming changes in estate and gift tax exemptions.

No matter your circumstances, the tax choices you make at the end of the year could greatly affect your current and future tax situation. When collaborating with your tax advisor, evaluate if the five tactics listed could be beneficial.

5 Tax Planning Strategies For A Small Business

Tax Planning Strategies For A Small Business

1. Hire Your Family Members

Employing a relative is one of the top strategies for small businesses to decrease their tax burden. The IRS provides many different options for this.

You can employ your kids to protect your earnings from taxes. Earnings given to your children are taxed at a lower rate, and in some cases, the tax is completely waived.

If your business is a sole proprietorship, your child’s wages are not subject to social security and Medicare taxes. Ensure that the profits are reasonable for business needs.

In addition, bringing on a spouse as an employee would also result in lower taxes as their income would be exempt from the Federal Unemployment Tax Act (FUTA).

2: Manage the Core Timing of Your Expenses and Income

A fundamental strategy is to speed up costs and postpone revenue. Businesses can reduce their revenue by postponing the issuance of invoices from the final quarter to the initial quarter.

To record costs, they have the option to make significant acquisitions before the end of the year instead of waiting a few months.

Delaying income until the following year means that taxes on it will also be deferred. In the same way, an expense incurred now can reduce current income instead of income in the future.

The perfect timing of revenue and costs relies on the prospects of your business.

If you anticipate a noteworthy increase in your personal income next year, it might be beneficial in terms of taxes to receive income earlier, for example. Consult with your accountant and tax advisor when making these decisions.

3. Opt for the Depreciation Technique

Depreciation is a method in accounting that allows businesses to recognize a decrease in value of an asset as an expense. This paper cost can lower taxable income and, as a result, taxes.

Depreciation typically needs to be allocated over extended periods of time, possibly spanning years or even decades. Yet, federal regulations permit companies to deduct the full value (up to $1 million) of eligible assets in the year they were purchased.

It only applies to assets placed in operation between Sept. 27, 2017, and 2023. Starting in 2023, the deduction for qualified property placed in service will decrease to 80% for future years.

This initial-year bonus depreciation allows a company to subtract the full cost of certain types of property from their income.

Business owners should seek guidance from a tax consultant for assurance. Here are a few things that are eligible in this regard –

  • Computers
  • Software
  • Equipment
  • Machinery
  • Furniture
  • Vehicles and Building improvements

4. Tax Implications for People Who are Working Remotely

Providing the choice of remote work can assist owners in keeping important staff and attracting skilled new employees.

However, as the trend shifts from being a temporary measure during the pandemic to becoming a permanent fixture in the business environment, Navani advises owners to be mindful of and prepare for tax consequences.

He recommends ensuring that you meet all payroll tax and state filing requirements, even if you move within the United States. Moving to a different country could make things more difficult.

He says that if an employee moves from New Jersey to India, the employer must be aware of the Indian regulations and duties placed on them. Your tax advisor can assist you in organizing and fulfilling these responsibilities.

5. Fund Your Employees’ Retirement Plan

Retirement plans provide tax benefits to businesses like those available to individuals. If you do not have a retirement plan, think about establishing one.

Corporate owners are allowed to allocate as much as 25% of their income towards a tax-deferred account such as a 401(k). Entrepreneurs have the option to contribute up to 20% of their income to a tax-deferred SEP-IRA account.

If you’re looking to maximize tax advantages, think about investing in a defined benefit plan. This is basically a retirement plan. Businesses can store a larger amount of money in tax-deferred contributions compared to defined contribution plans like IRAs and 401(k)s.

The complexity of defined benefit plans is in stark contrast to the simplicity of IRAs. It is crucial to have a professional’s help in getting started. And they may not be suitable for every business.

Some Additional Business Tips

A financial advisor can provide tailored guidance for your business’s unique needs.

It doesn’t really have to be difficult to find a financial advisor. An Accountancy firm in London, Buzzacott’s complimentary app connects you with a maximum of 3 approved financial advisors in your locality, allowing you to assess your advisor options for free before deciding.

To begin reaching your financial goals, start looking for an advisor who can assist you.

The intricate nature of business taxation suggests that nearly every business would benefit from seeking professional guidance. Customized tax planning services from a tax accountant could cost hundreds of dollars per hour. Nonetheless, business owners looking to handle their own tax planning can utilize affordable tax preparation software to simulate different scenarios.

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