Tax Planning for Small Business
Tax planning is vital for the longevity of any organization. Many small businesses ignore the need to plan their taxes as they are unaware of the many provisions, deductions, and credits available. Tax planning is an ongoing process and needs frequent review; it is not the last-minute fix.
The main areas that come under the scrutiny of IRS are:
- Failure to report substantial earnings, dividends, or business receipts.
- Fictitious claims for deductions, expenses, or charitable contributions.
- Accounting irregularities due to discrepancies in financial records.
- Improper allotment of income to a related taxpayer.
Tax Planning Strategies
To plan your taxes effectively, you need to approximate your personal and business income over the next few years. Then estimate your tax brackets. You should also roughly calculate your sales revenue, incomes, and cash flows over the same duration. The closer you are to your estimates, the more successful your tax planning efforts would be.
Tax Planning Strategies seek to achieve the following goals:
- Reduce taxable income.
- Lower tax rate.
- Co-ordinating the tax payment timing
- Claim tax credits.
- Control the effects of the Alternate Minimum Tax.
- Avoid tax planning mistakes.
Business Entertainment Expenses
Business Entertainment Expenses can lower your overall tax bill if adequately factored in. To qualify, entertainment expense deductions, the primary purpose has to be business, whether at a restaurant or a resort. Be prudent in selecting your location; avoid those that give more of an impression of vacation and less business, such as - ski trips, golf courses, sports events, and hunting trips
The IRS allows a 50 percent deduction on entertainment expenses as long as these arrangements are with the specific intention of conducting business.
Business Automobile Deductions
You can deduct either a standard mileage rate or actual expenses incurred using your car for business trips. In the case of two vehicles, you can increase your deductions to include both cars. To determine the business use, you can divide the business miles by total miles driven. In both cases, make it a habit to keep track of mileage logs and receipts.
Home Office Deductions
With many more people working from home, a home office deduction can be worth the effort. Here are some tips for these deductions:
- Display your home phone number and address on business cards.
- Maintain a business guest log book.
- Deduct long distance phone charges.
- Keep a time and work activity log.
- Retain receipts and paid invoices.
- Depreciate your home office equipment.
Next Level Tax helps you streamline these to avail maximum deductions.