Effective tax planning for a business involves accurately determining and projecting business income together with making maximum use of the available provisions of the tax to reduce the total amount of taxes owed. Since taxes are one of the major expenses of any business, effective tax planning is generally a necessary prerequisite for long term success.
Important Tax Planning Strategies:
- Taking advantage of available tax credits and tax deductions
The effective use of available tax credits and tax deductions can significantly reduce the taxable income of a business. - Correctly classifying a business to obtain the lowest possible tax rate
Because each type of business entity is subject to different tax liabilities and tax rates, entity selection is an important element of effective tax planning. - Planning ahead to meet income, payroll and excise tax filing deadlines
All tax payments must be filed appropriately and according to filing deadlines set by the collecting tax agencies. - Delaying or accelerating certain business activities
A business may want to delay or accelerate certain business activities such as collection of payments, real estate acquisitions and equipment purchases in order take maximum advantage of the provisions of the tax code. - Negotiating a payment plan when necessary
When sufficient funds are not available to cover impending tax payments, it is often beneficial for a business to negotiate a payment plan with the collecting tax agency before the payment is due.
Failing to make use of available tax planning strategies will often result in tax payments that are more than a business would otherwise need to pay. In addition, penalties and fines are frequently imposed by collecting tax agencies when a lack of tax planning causes a business to miss a filing deadline or have insufficient funds to pay the full amount of a tax bill. Because of the complexity of the tax code, effective tax planning for a business may involve enlisting the services of a qualified tax professional.