- Understand your tax planning
The tax planning process is a critical aspect that helps your business reduce the amount of taxes that need to be paid at the end of the year. Although some business owners wait until the last minute to find out taxation regimes, the secret to this is that the earlier you start, the better the chances of receiving a tax refund. Although there are various strategies to approach tax planning, the main ones are; increasing tax deductions, utilizing tax credits, and reducing your income. While relying on certified public accountants can be helpful, it is often important to have a concrete tax planning strategy in place. Doing so saves money and helps you avoid paying unnecessary taxes. Furthermore, understanding your tax planning gives you an overview of things you are spending on each year.
- Consider changing to a different tax structure.
When starting a business, the first thing you do is specify whether your business is a sole proprietorship of a partnership. However, things may change midway, and the changes and restructuring can impact the business structure. As you re-strategize, perhaps changing the tax structure in your business can help as well. By choosing to be taxed as corporations, businesses can save a lot of money in tax cuts. Before changing your tax structure, make sure the tax cuts you will realize make sense in the new structure.
- Know your tax payment plan
Although having a business might be your lifetime dream, generating revenue and paying taxes is a different ballgame that can make your dream a nightmare. This can be made worse by the “pay as you go” tax system, which requires businesses to make estimated quarterly tax payments. This payment plan presents a temptation for businesses in paying taxes as they seek to maintain liquidity. Delaying tax payments “as you go” can put you in an awkward position and present a challenge of penalties and interests that occurs due to delays. Ensure that you have a tax plan and money is always set aside to save yourself from the burden of penalties from the IRS.
- Carefully choose your accounting method.
There are different ways that small businesses calculate their revenue. However, most of them use cash method accounting methods. These methods that are based on the time the money is received instead of when an order was placed. This approach also counts the day the expenses were paid instead of the item or service ordered. Regardless of the accounting method you choose, adjust the approach strategically and report income based on the cash receipts if you want to reduce your end year revenues, mainly if you believe there is a possibility that the income for the coming year will be lower and you expect to be in a lower tax project. A proper accounting method allows you to know the possible tax cuts and anticipate the upcoming tax bracket, which helps you devise a proper tax payment strategy for your business.