Tax planning is a subject on which many business owners do not have a full grasp. In this article we will explore what tax planning is, how to arrange it and how it can help you, as a business owner and a tax payer.
What is Tax Planning?
Tax planning is the strategic mitigation of your year-end tax liability. This is done by determining your projected annual earnings and taking steps to offset those earnings with certain expenses and by increasing tax credit eligibility wherever possible.
What Are Some of the Factors that Will Determine the Course of My Tax Plan?
There are many factors taken into consideration when doing tax planning. Some of these are:
· The type of company, such as S Corp, LLC, Sole Proprietor, etc.
· Whether or not you have yourself on payroll
· The Amount of your projected annual earnings
· Whether you are using a Cash or Accrual accounting method
There are many, many other factors that will play a part in determining the best ways to mitigate your year-end tax lability.
Can I Do Tax Planning on My Own or Do I Need Help?
As most business owners know, there are many facets to taxation. This goes for both federal and state taxation. It would be advisable to consult a professional to ensure you have the most up-to-date tax laws, regulations and programs at your disposal.
A certified public accountant, or CPA is who you want to contact to get your tax planning done. If you don’t already have a CPA that you use to file your taxes for you, it would be wise to start looking for one. I would suggest getting a referral from someone you trust, as all CPAs are not created equal.
How Does My Tax Plan Get Implemented?
Once you have your tax plan from your CPA, you will likely be able to implement may of the steps on your own. However, if you there are steps you are unsure how to implement or you would just rather not do it yourself, you can hire a bookkeeper to do this for you.
If you have an in-house bookkeeper, he or she should be able to get it done. If you don’t need a full-time in-house bookkeeper you can outsource this. Most independent bookkeepers are willing and able to help with this on an as-needed basis.
When Should I Start My Annual Tax Planning?
For most of us, the tax year ends on December 31st. Tax planning is the preparation for this. It is to ensure that by December 31st, all your ducks are in a row to ensure you are in the best possible position when the year closes. Therefore, don’t wait until December to start your tax planning. This will leave little time to get your plan implemented and may even cause you not to be ready when the year ends. I would suggest contacting your CPA in mid to late October, or even earlier in cases where the annual income is eight figures or higher.
This will give your CPA time to review your files and make sound recommendations. It will also give you time to get those recommendations implemented without having to feel like you’re running around like a chicken with its head cut off to get it all done by year-end.
Also, take into consideration that October through December tends to be a busy time of year for CPAs and bookkeepers, so the earlier you get the ball rolling, the less stress it will be for you and for your accounting pros.
About the Author I have been doing bookkeeping for about 20 years and concurrently held a position as the head of HR for a small management firm for 14 of those years.
Currently, I am an owner of Peggy’s Bookkeeping Service with my partner and mother, Peggy. Peggy’s Bookkeeping is a small, family-owned bookkeeping service based in Clearwater, FL. You can visit our website at www.peggysbookkeeping.com.
Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.