When managing and planning your business’s finances, how much do you look at your business’s taxes? If you’re ignoring your taxes in your financial planning, you’re not getting the full financial picture for your company.
When managing and planning your business’s finances, how much do you look at your business’s taxes? If you’re ignoring your taxes in your financial planning, you’re not getting the full financial picture for your company. There are numerous ways that you can utilize tax projections and tax planning services to help your business grow and to take better control of your business finances. Keep reading to learn how professional tax planning can benefit your company.
Deferring Income or Expenses
One basic way in which tax projections and planning can help your business is by telling you the ideal time to put off receiving income or making purchases. Obviously, all income you receive within a calendar year will be taxed for that year; if you push off sending out invoices in the fourth quarter of a calendar year until the beginning of the next year, you won’t be taxed on that income until the next year’s tax return is filed. Similarly, expenses are deducted from your business income in the calendar year that the purchase is made; so, timing those purchases properly can reduce your income and the taxes you owe.
How does this benefit your business? That all depends on your company’s outlook for the future. For example, if your business income is higher this year, and you anticipate a lower income next year, you might make purchases before year end, or postpone fourth quarter invoices; the former will reduce your taxable income this year, and the latter will do the same while also increasing your income for next year. Timing these things properly can minimize the taxes you owe.
Since it takes some expert know-how to time such purchases and invoicing properly, we strongly recommend that you work with an accountant and tax advisor to determine which moves to make and when to make them.
Deducting Qualified Business Income
The new tax laws introduced in 2017 also added a qualified business income deduction. This brand-new strategy allows certain businesses to deduct up to 20 percent of business income. However, it’s only available for pass-through entities (sole proprietorships, S corps, single-member LLCs), and is not an option for C-corps. There are also additional limitations based on business type, so it’s important to meet with a tax planner to learn more about qualifying for and taking advantage of this deduction.
Plus, this deduction is scheduled to expire in 2025, so you definitely want to take advantage of it while you still can!
Using Depreciation to Your Advantage
Usually when you talk about depreciation, it’s not a good thing. And while you would probably still prefer to not have the value of your property or equipment decline over time, proper tax planning can help you use that depreciation to your advantage.
While the depreciation of your company’s property and equipment has always been deductible, tax laws used to require you to spread the depreciation deduction out over several years (or even decades, in some cases). However, the Tax Cuts and Jobs Act of 2017 introduced a new caveat in tax laws that allows businesses to depreciate 100 percent of qualifying property (up to $1 million) in the year that the equipment is purchased.
This is another way in which timing equipment purchases is valuable to your business. If you’re planning on business expenses that may qualify for the first-year depreciation deduction, then making those purchases at the right time can work to your advantage when you file your company’s tax return. You’ll need to consult a tax planner to see if your planned expenses qualify, but typically, computers, equipment, furniture, business vehicles, machinery, software, and improvements to your building qualify for first-year depreciation.
Growing Your Business with Tax Planning
Surviving in the business world has always meant planning ahead and staying ahead of the curve. If you’re simply reacting to the changing circumstances around you, chances are you’re already losing money. And the same can be said of tax planning: If you’re simply filing your business’s tax return and reacting to what you owe based on last year’s financial activities, you’re probably losing money to taxes. Planning ahead and making smart financial moves that will minimize your taxes can help keep more of your business’s hard-earned money in the bank.
If you’re looking for a tax planner and financial advisor for your business, contact Kohl & Company CPAs today. We do more than just file your business’s taxes; we become a partner who is there to help your business grow and thrive for the future. Give us a call to set up your consultation today!