Small Business Tax Planning Strategies

When you run a small business your focus will be on optimizing your revenue. But alongside that it will also be in your best interest to minimize your tax liability. There are several tax planning strategies available for small businesses. Regardless of whatever tax strategy you choose to follow, it should be aimed at the following goals:

• Lowering tax rate
• Claiming credits and deductions
• Reducing taxable income
• Avoiding tax planning mistakes

Small businesses should take advantage of professional tax advisors and CPAs to develop an effective tax planning strategy. These professionals can help you save tax dollars and earn greater revenue. 

The following strategies will prove beneficial to small businesses as they plan out their taxes for the year:

Evaluating Tax Status

Small businesses have several options when it comes to strategizing their business structure. You have the option of operating as a sole proprietor, partnership, limited liability company, S Corporation or C Corporation.

The way you choose to structure your small business can greatly impact taxation on your business income and deductions.

During tax planning, it can help to evaluate your current tax status and see if you want to change it. It could be possible that you’ve outgrown your current business structure and could benefit from changing to a new one. 

Deferring/Accelerating Income

Small businesses often use the cash method of accounting for their tax returns and bookkeeping. This method revolves around recognizing income only when it’s received and expenses when they are paid. This strategy allows for tax planning opportunities. 

According to this method, if you think tax rates will increase next year, you could accelerate income into the present year. Similarly, if you think your small business wil be in a lower tax bracket the next year, you can defer your income.

Setting Up a Retirement Account

A retirement account can help your small business reduce its taxable income. Such retirement accounts include IRAs and contribution plans such as 401k. 

Setting up a 401(k) plan before the end of the year, allows you to deduct contributions made to the plan when filing your tax returns. Additionally, setting up retirement plans not only allows you to deduct contributions, but also qualifies employers to apply tax credits. 

Availing Coronavirus Tax Relief

Coronavirus had serious negative consequences for small businesses. Many lost their revenue, employees, and some even had to shut down. However, Congress has passed several legislations to help small businesses get through the pandemic without significant loss. These legislations include:

• Coronavirus Aid, Relief and Economic Security Act (CARES)
• American Rescue Plan Act of 2021 (ARPA)
• Coronavirus Response and Relief Supplemental Appropriations Act (CRRSAA)

Some of these legislations help provide paid leave tax credits. They also allow businesses to qualify for tax credits to help offset the cost of employee wages and health plan costs.

Maximizing Tax Deductions

A deduction reduces the amount of your income that is subject to tax. As a result, deductions can lower the amount of tax you have to pay. Being a business owner, you are entitled to deduct expenses from the taxes you have to pay.

Deductions can decrease your tax liability. However, for every deduction you make, you should keep significant records, including receipts and any helpful documentations. 

Contact Us Today for Tax Planning Assistance

Steward Ingram & Cooper PLLC is a team of dedicated professionals who strive to provide excellent client service in an environment of complete confidentiality. We can help your small business successfully develop a tax planning strategy to ensure its success! Contact us today at  (919) 872-0866 or fill out the form below.