Taxes are a fact of life for everyone, but for small business owners, the maze of tax regulations can be especially daunting. A solution is to think in terms of tax planning. Business ownership, in particular, provides a fertile ground for tax planning.
Tax planning is a year-round approach that is done in the context of your overall financial picture. The goal is to make sure that a given tax saving strategy won’t undermine your other important financial goals. Take the decision of choosing a business structure, for example. Sole proprietorships, partnerships, S or C Corporations, and LLCs or LLPs have different income tax requirements and tax calculations. New laws might prompt you to consider changing from one business structure to another to reduce your tax bite.While this could be a wise move, be sure to consider non tax issues as well, such as how a new business structure will affect your ability to shield your personal assets from business creditors, take deductions for fringe benefits, and pass the business to your heirs.
Here are a few other tips:
•Keep up on the basics of new tax laws—newspapers, magazines
and online sources provide a wealth of information.
•Expect your financial planner and/or accountant to alert
you to tax planning opportunities presented by changing laws
and regulations.
•Utilize a professional tax preparer.
•Look for areas in your business that present tax savings
opportunities, such as saving in your company retirement account,timing income and expenses, and using charitable gifting strategies.
•Be cautious about basing tax planning too heavily on what you think
future tax laws might be. The laws may never materialize.
Ultimately, tax planning is less a goal in itself than a means to help
achieve your other business and personal goals. Saving taxes should
complement, not dominate, your financial life.
