• 165 Passaic Avenue, Suite 411, Fairfield, NJ 07004
  • Monday-Friday 9am - 5:30pm
  • 973-439-7200
July 30, 2014

Why Tax Planning is Important in New Jersey


Tax Planning in NJAs a business owner, you likely spend much of your time designing and implementing plans. You probably have a business plan, a marketing plan, a financial plan, and maybe even an exit plan for how to get out of your business when the time is right. Owning a business is all about planning and then executing those plans.

However, there may be one critical component of your business that you fail to plan for every year. That area? Taxes.

Taxes are inevitable, but that doesn't mean they can't be managed. By planning for your taxes in advance, you can implement strategies to manage and reduce your tax burden. Tax planning in NJ is especially important since the state has some of the highest business and individual income tax rates in the country.

What is tax planning?

Tax planning is the process of estimating your upcoming tax liabilities and then implementing strategies to reduce the tax burden. It starts with making a forecast of your sales, expenses, and income and then determining what deductions and credits you have in place. At the end of those initial steps, you and your accountant will have an estimate of the taxes you'll owe.

This basic initial step is important for two reasons. First, taxes are likely one of your biggest expenses and they have to be paid throughout the year. If you don't pay them on a quarterly basis, you'll face significant fines and penalties from the IRS. However, paying those quarterly taxes could be challenging if you don't know how much you owe.

These initial tax planning steps are also important because they lay the foundation for additional steps you can take to reduce your liability. It is perfectly reasonable to take steps to minimize your tax liability as long as those actions stay within the law. Tax planning crosses into tax evasion when one willfully misstates income, lies about deductions, or takes other actions that are deceptive in nature.

That doesn't mean, though, that you and your accountant or other tax preparer can't look at the credits and deductions that are available under the law and find those that may apply to your business. In fact, that is exactly what you should do.

After estimating your tax liability, you and your tax expert can find credits and deductions that you can take advantage of to reduce your tax bill. Those could include buying a new piece of equipment, making environmentally conscious upgrades to your building, or even offering a new benefit to your employees.

There are a wide variety of tax planning strategies available to you. In fact, tax planning in NJ is often dependent on finding and implementing as many of these strategies as possible. However, you can't implement these strategies if you wait until April 15. You have to start as early as possible, and preferably at the beginning of the year, to make tax planning in NJ work.

Tax Planning Examples

Still not sure that tax planning is important? Consider these examples of how some business owners have been impacted by their tax planning in NJ:

1) Consider self-employment taxes. 

Too many business owners make the mistake of thinking that their deductions will cover any profit that they have. That may be misguided thinking. Yes, it is very possible that a self-employed person with $30,000 in profits will have close to $30,000 in deductions. All those materials, employees, and supplies add up.

However, as a business owner, you have to pay more than just income taxes. You also have to pay your own payroll taxes and half of the payroll taxes for any employees you have. Those can add up. In 2014, the federal self-employment tax is 15.3 percent. That covers Social Security and Medicare and is on top of any income taxes that you must pay.

Failing to account for self-employment can be a devastating blow at tax time. You can soften the blow by planning for these taxes accordingly.

2) Take advantage of expiring deductions. 

The tax code changes all the time. For example, in 2013, the tax code allowed businesses to deduct certain types of equipment purchases up to $500,000. On January 1, 2014, the allowable write-off amount dropped to $25,000.

If you were in need of the type of equipment that could be written off, you could take advantage of this rule, buy your equipment, and apply the purchase price as a deduction against your taxes.

However, if you didn't plan in advance, you wouldn't be able to do it. After January 1, 2014, the law was changed and there was no ability to retrodate an equipment purchase to get the deduction.

Tax rules like this one change all the time. That's why it's critical to plan in advance and take advantage of them.

3) Review the new healthcare law and its impact on your business. 

If you offer health insurance to your employees, you'll likely see major changes in the coming years as a result of the Affordable Care Act. It is essential that you plan for these changes before they become requirements. Failing to notify employees of changes or adjust your healthcare offerings could result in hefty tax penalties.

Tax planning in NJ is one of the most important business actions you can take. Incorporate tax planning into all of the other planning you do on an annual basis. If you do, you'll likely see a significant decrease in your annual tax bill and a boost to your bottom line. 










linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram