Business Tax Planning
Let me guess – you’re so busy running your business, you don’t have time to think about taxes until the day they’re due. Am I right? You’re not alone. Business owners across New Jersey share your sentiment. They’re too swamped with managing employees, serving clients and fighting to get business to worry about taxes. This approach is not in the best interest of your business. Taxes are among the largest expenses you’ll pay, and planning for them early can reduce your liability and boost your bottom line. One of the best ways to do so is to work with a tax professional, who specializes in business tax planning. They can dig deep into your business and identify tax saving opportunities.
How You Can Benefit from Business Tax Planning
A tax professional can be most effective if you start the process early. Here are a few ways in which early business tax planning can pay off at the end of the year:
Calculating Estimated Tax Payments
If you’ve been a business owner long enough, you’ve probably dealt with this scenario. You calculate your quarterly tax payments, carefully following every guideline. You think you absolutely know what your year-end liability will be. However, when you get there, you realize you underestimated your payments and now your year-end liability is significantly higher than you expected. If your margins are already thin, a high tax bill could easily push you into the red. If you start working with a tax planner at the beginning of the year, they can work with you every quarter to adjust your estimated tax payment and take advantage of available credits and deductions. That way you can be sure that you’re on schedule and won’t catch a nasty surprise at the end of the year.
Consulting on Major Purchases
Do you regularly buy new equipment, machines or property? It’s helpful to have a tax planner to consult with before you make those purchases. They can view it through the lens of business tax planning and advise on when it may be best to make the purchase. Perhaps you have a major tax liability upcoming and pushing the purchase into the next year would be advantageous. Maybe you’d be better served by making the purchase early and taking the deduction as early as possible.
Controlling Your Tax Due Date
If you’re currently in a cash crunch or foresee one in the future, your tax planner could work on getting you an extension for your tax payment. Not all extension requests are approved, so it always helps to have an expert on your side. The tax planner can prepare an extension and, more importantly, help you defer your tax payment.
Maximizing Deductions and Credits
The tax code is so complex that it would be nearly impossible for a non-tax expert to identify every single opportunity to reduce their liability. A business tax planner can review your operations at the beginning of the year and suggest deductions that you can implement throughout the year. They may suggest changes to the benefits you offer to employees or in the way you reimburse expenses. They could recommend that you take advantage of specific tax laws that may change in the near future or they may identify government credits that are specific to your industry. There are numerous ways to reduce your tax liability, but you may never know about those if you don’t work with an expert.
What to Look for in a Business Tax Planning Professional
There are a wide variety of professionals who offer business tax planning services. They can range from CPAs to tax attorneys and even to financial consultants who have tax backgrounds. Finding the right tax planner doesn’t so much depend on the letters at the end of their name on their business card as much as it depends on their ability to understand your situation and address your needs. Here are a few things to look for in a tax planner:
This has to be at the top of your list. There are a lot of things that are important in a tax planner, but, above all else, they have to understand your situation and how it’s impacted by tax laws. Ask fellow business owners for a referral or talk to other trusted professionals, like your lawyer or financial advisor. Often, a referral from a trusted source is the best proof of someone’s competence. Also, research a tax planner’s background to see if their experience aligns with your business. Do they have a blog in which they’ve written about specific tax issues? Do they have white papers or articles that you can find online? If so, that will give you an idea of whether they’re competent in the issues that are specific to you. Do they have specialized team members in the tax departments to assist you with unique situations?
Tax planning isn’t black-and-white. You can be aggressive or conservative in the deductions and credits that you take. Of course, the more aggressive that you are, the more risk there is that you’ll face an audit. Make sure the tax planner’s risk level is aligned with yours. Taking aggressive tax positions isn’t worth it if it keeps you up at night.
It’s important that you understand your tax planner’s recommendations. It’s easy to get lost in accounting jargon and technicalities, so make sure they’re speaking clearly and in terms you can understand. Ideally, they should provide examples of their recommendations and relate it specifically to your business. You shouldn’t walk out of a meeting with more questions than you had when you walked in.
You don’t have to be best friends with your tax planner, but it’s helpful if you have a good rapport. You’ll probably be in regular communication with them, so it’s important that you feel like you can speak openly and comfortably. Even if a tax planner meets all the other criteria, don’t choose them if you don’t have a good gut feeling. You want a good partnership right from the beginning. Many business owners wonder when it’s the right time to start business tax planning. The answer is that it’s always a good time. Whether you’re at the beginning or end of the tax year, a good tax planner can help you find strategies to reduce your liability.