Reducing your business's tax liability, preparing for your company's tax bill, and making decisions before the end of the tax year are three ways you can proactively impact your company's bottom line.
We believe that taking a proactive approach to your business taxes can make a substantial difference in your financial bottom line. Many companies adopt a reactive approach, simply filling out their tax returns and hoping for the best. However, this passive strategy can cost you thousands of dollars in taxes over the years. That's why we encourage our clients to leverage business tax planning services and embrace a more proactive approach to their taxes. In this newsletter, we will explore how tax planning and tax projections can significantly benefit your business.
Reducing Your Business's Tax Liability
Taxes often represent a significant expense for most business owners, and it's crucial to focus on reducing your tax liability each year. While hunting down deductions and finding eligible credits on your annual tax return is important, it's just scratching the surface. Professional tax planning throughout the year can offer far greater opportunities to cut your taxes. By examining your projected taxes and finances over the next several years, we can develop comprehensive tax strategies that save you more money.
Let's consider a simple example: "bunching" your tax deductions. Instead of taking the standard deduction every year, you can pay two years' worth of qualifying itemized deductions in a single year. For instance, you can purchase next year's business supplies and equipment at the end of the current tax year, rather than at the beginning of the following year. By doing this, you can double your deductible expenses for that year, making it more beneficial to itemize. The following year, when your itemized expenses are much lower, you can take the standard deduction. Properly implementing this strategy requires planning and foresight, which is why we strongly recommend working with a CPA to ensure you're using it effectively. This is just one example of how we can help you reduce your tax liability by taking a long-term approach to your taxes.
Being Prepared for Your Company's Tax Bill
Taking a passive approach to taxes by simply filling out your return and hoping for the best can lead to unpleasant surprises. Changes to tax laws or your own financial situation can have a drastic impact on your business's taxes. Discovering that you owe much more than expected can be overwhelming, potentially leaving you unable to pay your tax bill.
At Peter Witts CPA, we emphasize the importance of being prepared. In addition to tax planning, tax projections can help you anticipate your tax obligations, giving you several months to plan and save for that tax bill. By carefully estimating what you'll owe when it's time to file, we provide you with the opportunity to make necessary adjustments and avoid last-minute financial strain. Should you need additional time to pay off your tax bill, we can assist you in working with the IRS to request a suitable payment plan.
Making Decisions Before the Tax Year Ends
The taxes you'll owe when filing next tax season are based on your income and expenses for the current year. Without tax planning or projections, the opportunity to impact your tax situation is largely closed by the time you file your return. This is why professional tax planning is crucial. It gives you a clear picture of your tax situation in the present, allowing you to make adjustments before the end of the year.
By engaging in tax planning now, you have the opportunity to make decisions that can positively impact your tax position. For example, you may consider purchasing a long-awaited piece of equipment, making deductible contributions to charitable causes, or increasing end-of-year bonuses for your employees. These actions can reduce your tax liability and put you in a better tax position come spring—but only if you start planning now.
I’m Kristin, the PWCPA PC Customer Success Specialist. For more information about this topic, or any other, you can always reach me through our customer ticketing system.