Tax Planning for Small Business Owners
The accountants at Cook CPAs help small business owners in tax planning and tax issues. Serving Sacramento and Roseville, California.
Tax planning is a process of looking at various tax options in order to determine when, whether, and how to conduct business and personal transactions so that taxes are eliminated or considerably reduced. Many small business owners ignore tax planning, and dont even think about their taxes until theyre scheduled to meet with their accountant; but tax planning is an ongoing process, and good tax advice is a very valuable commodity. You should review your income and expenses monthly, and meet with your CPA or tax advisor quarterly to analyze how you can take full advantage of the provisions, credits and deductions that are legally available to you. Although tax avoidance planning is legal, tax evasion the reduction of tax through deceit, subterfuge, or concealment – is not. Frequently what sets tax evasion apart from tax avoidance is the IRSs finding that there was some fraudulent intent on the part of the business owner. The following are four of the areas most commonly focused on by IRS examiners as pointing to possible fraud:
- A failure to report substantial amounts of income, such as a shareholders failure to report dividends, or a store owners failure to report a portion of the daily business receipts.
- A claim for fictitious or improper deductions on a return, such as a sales representatives substantial overstatement of travel expenses, or a taxpayers claim of a large deduction for charitable contributions when no verification exists.
- Accounting irregularities, such as a businesss failure to keep adequate records, or a discrepancy between amounts reported on a corporations return and amounts reported on its financial statements.
- Improper allocation of income to a related taxpayer who is in a lower tax bracket, such as where a corporation makes distributions to the controlling shareholders children.
Tax Planning StrategiesThere are countless tax planning strategies available to a small business owner. Some are aimed at the owners individual tax situation, and some at the business itself. But regardless of how simple or how complex a tax strategy is, it will be based on structuring the strategy to accomplish one or more of these often overlapping goals:
- Reducing the amount of taxable income
- Lowering your tax rate
- Controlling the time when the tax must be paid
- Claiming any available tax credits
- Controlling the effects of the Alternative Minimum Tax
- Avoiding the most common tax planning mistakes