How Tax Planning Can Save You Money
April is still far away, so you don’t have to worry about taxes just yet, right? Wrong! The sooner you start to plan ahead, the more savings you can expect in the future. Even if your business claimed all possible credits and deductions last year, there could always be something you can improve. As your business grows, your daily operations, internal structure and business plans change as well. Your tax strategy should also adjust if you want to stay ahead of the curve. When you estimate your taxes and plan throughout the year, you can maximize your savings and avoid any surprises in the spring.
When you started your business a long time ago it was just you. Now you have employees, shareholders and maybe even partners. You might have initially registered your business as a single-member LLC, but is this structure still a viable solution? You could be giving IRS more money than you have to. In some cases, it might be wise to change your business structure to S corporation or C corporation to take advantage of lower tax rate and other tax breaks. To give you an example, an owner of an LLC is considered self-employed and is therefore subject to self employment tax (SECA) while an S corporation owner is treated as an employee and falls under FICA. Each one of them falls under different tax rates and obligations. Depending on your profit margin, it might make sense to make a switch. It is crucial that you are timely with your Maryland tax planning, as internal restructuring could take a while to process.
Understand the impact of your decisions
Every business decision you make can come back to bite you during tax time. You should evaluate how your actions may affect your tax responsibility before going through with your initiative. Consult with your bookkeeper or contact your trusted Maryland accountant. Below are some of the decisions you should definitely discuss with a business tax specialist:
- Implementing a 401k
- Taking or paying off a loan
- Making investments
- Hiring new employees
- Renovating your facilities
- Landing money or collecting debt
- Expanding business to a different state
Giving your employees an access to a retirement plan or hiring a veteran may reduce your taxable income or qualify you for a tax credit. On the other hand, expanding business into a new territory could make you subject to new taxes and regulations that should be taken into consideration. In order to better predict your taxes and take advantage of all possible savings, communicate with your accountant and listen to their advice.
Develop a strategy
Business accounting is complicated, no doubt about it. That’s why hiring a professional accountant often helps save time, unnecessary stress and, of course, money. You could keep a good record of your profits and expenses, use available tax credits and deductions, and still miss out on some savings. It’s important to look beyond your day-to-day operations and build a tax strategy for years to come. If you can’t predict your profits and losses, you may end up in a higher tax bracket. Sometimes, this can be avoided through deferring income into the next year and accelerating deductions. For example, by holding off and sending out invoices in late December and paying recurring bills ahead of time you could increase your write-offs and reduce your taxable income. But you have to plan this ahead of time, because in April it will be too late. Need help with accounting, payroll, tax preparation or any other financial services? Contact the CFO Source at 410-242-0526. We provide the full range of business consulting and accounting services, and our clients’ success stories speak for themselves!