In the world of business, the adage "It's not how much you make, but how much you keep" resonates deeply. Every business, irrespective of its size, must grapple with tax planning. However, for mid- to large-sized businesses, tax planning can be complex and requires a strategic approach to minimize tax liability.
Understanding tax laws
No company can carry out effective tax planning without understanding current tax laws. They should be aware of any changes or amendments and understand how these impact their business operations. Key areas to focus on include, but are not limited to:
- Corporate tax
- Sales and use tax
- Property tax
- Excise tax
- Employment tax
Understanding these tax types and applicable laws will help businesses to take full advantage of available tax breaks and incentives, thereby reducing their tax burden.
Learn more about best practices for handling business tax planning needs with our business checklist. Access the checklist here.
Strategic tax planning
Strategic tax planning involves a series of steps and measures designed to reduce a company's tax liability. These include:
- Expense tracking – Businesses must maintain accurate records of all business-related expenses, as these can be deducted from taxable income.
- Tax credits – Businesses should actively seek out available tax credits. These credits, which may result from research and development, the hiring of certain individuals, or green initiatives, can significantly reduce tax liability.
- Deferred income – Businesses can potentially reduce their tax liability by deferring income to the next financial year. In so doing, the tax liability for the current year is reduced.
- Investing in retirement plans – Contributions to retirement plans, such as 401(k)s, are typically tax deductible, allowing businesses to reduce their taxable income.
- Taking advantage of depreciation – Businesses can deduct the cost of major purchases over several years, thereby reducing their tax liability.
- Charitable contributions – Making contributions to charitable organizations can provide businesses with significant tax deductions.
The role of financial and tax professionals
Given the complexity of tax planning, it is often beneficial for mid- to large-sized businesses to involve financial and tax professionals in the process. These professionals can offer guidance on understanding tax laws, identifying tax-saving strategies, and avoiding potential pitfalls.
Tax planning is a critical aspect of running a successful mid-to large-sized business. It involves a careful combination of strategic planning, understanding tax laws, leveraging tax breaks and incentives, and working with financial and tax professionals. By planning for taxes, business owners can work to reduce tax liability, thereby increasing their business's overall profitability and longevity.
Our business checklist can help you get a handle on the expenses and taxes that come with a mid-sized business. Access the checklist here.
Important Disclosures:
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by Fresh Finance.
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