Tax Planning: Business Planning For Efficiency

Planning is key when it comes to taxes. You want to ensure you have all your documents and information to avoid any issues down the road. Business tax planning can…

September 6, 2022

Written by John Wonneberger

Planning is key when it comes to taxes. You want to ensure you have all your documents and information to avoid any issues down the road. Business tax planning can save you a lot of money and help you run your business more efficiently.

 

There are a few key things to keep in mind when engaging in business tax planning. In this post, we’ll discuss business tax planning, how it works, and the benefits of engaging in this type of planning.

 

What’s Tax Planning?

Tax planning refers to planning your taxes around your financial goals and transactions. You may want to consider various tax planning strategies for your business, but you should look at the tax rules that apply to know if a specific strategy will work for you. 

 

Business Tax Planning

Business planning refers to planning which activities your company can engage in, what administrative costs are required, and how efficiently they are used.

 

Business tax planning can help your business to increase profits by managing taxes regularly. It is also recommended that a business tax plan be done as part of a comprehensive business strategy.

 

Tax Planning Strategies

In general, tax planning strategies include using commercial aircraft and supporting teams or tax advisors when planning significant transactions such as mergers and acquisitions, joint ventures, or the sale of businesses. Tax planning can also help businesses decrease administrative costs by outsourcing functions such as the return preparation process to third parties like accounting firms and others with specialized skills in various areas.

 

As a business owner, you can use numerous tax planning strategies to minimize your taxes. One use is to ensure that the business expenses claimed by the company relate to only the business and not any private expenses. If a company is structured as a partnership, then any income or profit will be distributed amongst the partners. At the same time, the profit is included in the shareholders’ income if it is structured as a corporation.

 

Business Tax And Business Planning For Efficiency In Wealth Management

 

They are closely related because taxes are both a cost and a source of revenue for your company. Thus, a business owner needs to ensure that the taxes paid by the business are at an optimum level so that our financial goals are also achieved. Business tax planning can also help you save administrative costs in your business.

 

Business tax planning starts with a business plan. A business plan is a road map that helps your company to achieve its goals. It is based on the amount of capital or funding required by the company to succeed. Based on these factors, you can set up the business organization that is most efficient for your needs. An efficient business organization will also help you reduce administrative costs and manage your working capital more efficiently.

 

Business Tax Planning Strategies

There are significant business tax planning strategies that you can use to minimize your taxes. Some of these strategies are:

 

  • Invest in Tax-Advantaged Investments
  • Use Retirement Accounts to Reduce Taxes
  • Utilize Business Expenses to Reduce Taxes
  • Claim Business Tax Credits
  • Accelerate Deductions to Pay Less Taxes
  • Structure Your Business to Minimize Taxes

 

Effective business tax planning can help you save money and improve your bottom line. However, it is important to work with wealth management professionals to ensure that you are using the most appropriate strategies for your business.

 

Benefits Of Business Tax Planning And Planning For Efficiency

  1. Minimizing Income Tax

Paying income tax is a significant expense for any business. Income tax is minimized by planning for factors such as the timing of payments and the allocation of profits between partners in the case of a partnership or between shareholders in the case of a corporation. A business owner’s income is taxable when received, but it is reduced by minimizing overall profit and increasing expenses through various tax planning strategies.

 

  1. Minimizing Capital Gains Tax

Capital gains tax is payable when a capital asset such as shares or property is sold at a profit. The capital gain is minimized by selling assets not appreciated while owned and not part of the business operation. It is also possible to borrow money and invest in assets such as shares sold for a profit. It is essential to factor the interest on the loan used for investing purposes when considering the amount of capital gain that will be taxable.

Optimizing Your Business Structure For Tax Savings

There are business tax planning strategies that you can use to minimize your taxes:

 

  • Ensure that the business expenses claimed by the company relate to only the business and not any private expenses. 

 

  • If a company is structured as a partnership, then any income or profit will be distributed amongst the partners. At the same time, the profit is included in the shareholders’ income if it is structured as a corporation. 

 

  • Some companies opt to become a limited liability company (LLC) instead of a corporation. By becoming an LLC, you may be able to reduce the taxes paid by the company.

Efficient Debt Financing

Debt financing is commonly used by businesses that require large amounts of capital to buy assets or have operating costs that exceed their cash flow from sales. Debt financing refers to borrowing money from lenders, usually banks, in return for interest payments and the repayment of both principal and interest at the end of a specified period. It is possible to minimize the interest and repayment costs of debt financing by planning the timing of borrowings and repayments and using assets that will not increase in value instead of cash.

Tax Planning For Outsourcing

Outsourcing is using professionals in various specialized fields on a contract basis to provide services beyond what an individual business owner or employee can do. The advantages of outsourcing include that it allows businesses to pay for these services with pre-tax funds and reduce their tax liabilities. 

 

It is also possible to minimize tax through payment of the service provider in advance and pay them in smaller sums as required. It is possible to take the cash you would have used to purchase an asset and reduce your tax liability simultaneously. For instance, you can sell shares that are trading at a low price and then use that money to pay your tax advisor, who will minimize your capital gains tax liability through their business tax planning strategies.

Business Tools And Planning For Efficiency

Tax planning can help you to prepare and submit tax returns. It allows you to set up an efficient system for your business activities, such as planning the stage at which capital assets are purchased. A key aspect of effective tax planning is doing it yourself, but many people also use a bookkeeper or accountant. You can decide to prepare your return yourself or use a bookkeeper as they tend to be cheaper.

 

Maximizing Value To Shareholders

Capital gains are minimized if a business is structured as a corporation or partnership, with profits distributed amongst shareholders and partners, which may result in lower taxes for the company owners. These strategies include:

 

  • Using multiple tax filing strategies (multiple individual tax returns, minimizing taxes paid, and increasing wealth management.)

  • Structure companies as LLCs – allowing investors to take a larger share of profits often unavailable through other structures.

  • Structure the company as a Limited Liability Company (LLC) – which limits a company’s liability and prevents additional personal income tax obligations.

 

Changing Tax Strategies

Many tax planning strategies may increase your business profits or tax savings. However, it is essential to remember that these strategies are only used if they are legal in your jurisdiction and have been approved by the government authorities, such as taxing authorities. It is also necessary to identify the reasons for changing your tax strategy as it may affect your long-term business investment plans. 

 

Some of the reasons for changing a tax strategy include:

 

  • To take advantage of a new business opportunity.
  • To minimize the tax burden on your business.
  • To improve cash flow to reduce the cost of doing business.
  •  To increase profits

 

When selecting a new tax strategy, you should consider its impact on your business and the compliance and administrative costs. You should also seek professional advice to ensure that the new strategy is legal and will not result in penalties.

 

Let’s Develop Your Strategy

Business tax planning is crucial to the success of any business. It would help if you determined whether you would be better off by establishing yourself as a sole proprietor, an individual taxed as a wage earner, or a company and allocating funds between the personal and business accounts. At Nesso Wealth, we can help you with that. Our qualified team can help you develop effective tax planning strategies to maximize the value of your business and reduce your tax liability. 

 

It is essential that you set up accurate accounting systems and processes to help you manage your business on a day-to-day basis and also help implement any tax planning strategies. Our Nesso Wealth team is available to help you build a tax plan that will help your business and lessen your liability. Don’t hesitate to reach out now to learn more about what we can do for you.

 

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