Simplistically, tax planning is process of analyzing your financial plan by looking at it from a tax perspective. Understanding how specific tax items relates to your company throughout the year will help you determine how to act on those items in the most efficient tax manner before year end.
Once you understand the goal and process, you can understand the benefits of how tax planning helps your business. Let’s break it down.
What is the Goal of Tax Planning?
- Analyzing your income
- Make a plan to file your taxes
- Decrease the overall amount you pay in taxes
All of this should be done year-round, so you should work closely with your tax advisor and your business advisor to ensure that you are looking at all aspects of your business, income, tax responsibility, and potential deductions.
What are the Benefits of Tax Planning?
Proper tax planning involves two basic core principles:
- Improving cash flow
If you are looking to minimize your businesses tax payments and the amount you owe in taxes each year (and who wouldn’t?), then tax planning is the right thing for you.
To start, you need to build a solid tax plan, it should include the following:
- Business Structuring
- Tax Payment Planning
- Cash Management
Your business structuring should ideally be evaluated before and during the growth stage of your business. This is one of the first things we will look at. If your business structure is not correct, it is harder to change it once your business is up and running. How you structure your business plays a big part in tax planning, as different structures have different tax savings opportunities.
One of the first things you need to know and understand are tax deadlines; if you are not aware of the deadlines you cannot plan to make the proper payments on time. The next big piece is having the money set aside to ensure that you can make the payments when they are due.
We help our business owners map out deadlines and creating accounts to put the money aside to ensure you make the proper payments and don’t incur any penalties.
You need to understand your businesses cash income and structure to see how it fits into your tax payment plan. Something that is worth noting is that a lot of our clients believe that they have to pay their taxes right away, but in reality, you can prioritize where you put the money as long as all taxes are paid by the end of the year. This is something we help build into your plan.
Our goal is to work with our clients to come up with the best plan for cash management throughout the year in order to minimize the impact of paying your taxes all at once.
Tax planning is key to the long-term success of your business and profits.