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The Key to Tax Season Success: Year - Round Tax Planning

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Shahar Plinner | June 1, 2023

“Master strategic tax planning for a smooth tax season. Reduce tax burden, maximize deductions, and achieve financial stability. Expert advice from a tax expert.”
7 min read
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    Achieve Financial Stability by Working on Your Taxes All Year Long

    Tax season can be stressful for business owners. There’s a lot more to filing business taxes than a simple income tax return, such as managing budgets, tracking spreadsheets, and spending some late nights at the office to make sure everything is in order. It doesn’t have to be this stressful. If you want to have a smooth tax season with fewer headaches and hassles, it’s best to start early. In this blog we will be discussing why you should be preparing for your tax season all year long, ensuring that you have everything in order to take a more efficient approach to your taxes.

    What Is Strategic Tax Planning?

    Strategic tax planning is a tactical approach to analyzing your financial situation and ensuring that all of your efforts work together to reduce your tax burden and maximize your deductions. This is what it means to be “tax efficient.” What goes into strategic tax planning? You have to organize a strategy to reduce the amount of taxes paid within a certain period of time. You can begin to plan a tax strategy in the middle of the year, giving you time to execute your strategies and learn from your progress.

    Benefits of Strategic Tax Planning

    Strategic tax planning is the key to having a relaxed tax season and reducing your tax burden. There are many advantages to a robust tax planning strategy, including:

    Reducing Your Tax Liabilities

    Any tax plan should focus on reducing tax liabilities. This is the payment you owe for your federal or state taxes, which is based on your income or profits. Reducing liabilities can be complicated, especially if you’re rushing to get everything done, When you prepare for your taxes by giving yourself ample time, you can ensure that you’re taking the best possible approach to reduce your taxable income by deducting expenses. You also limit the mistakes that can cost you, not only in overpaying on your taxes but in potential fines and penalties for errors on your return.

    In addition, planning for your taxes gives you more control over when you pay your tax bill. For example, if you have revenue near the end of the year that could push you into the next tax bracket. You could defer your income into the new year by setting up invoices for early in the following year or adjusting the due dates. You could also reduce your taxable revenue by spending money on business expenses like new office supplies or technology, which may be deductible.

    Keep in mind that deferring your income or making business purchases can reduce your taxes, but you’ll also need to have the cash flow to wait for payment or spend money. If you’re not in a position to do that, don’t be tempted just to reduce your tax liability.

    Staying Up on Tax Laws

    Tax laws change often, especially as they apply to business owners and certain industries. In particular, many tax laws have changed since the pandemic, including deadlines and tax requirements for small businesses, and the responsibility falls on you to keep up with them.

    If you don’t have a tax planning strategy, you could miss important dates or updates that may affect your approach to your taxes. Or worse, not knowing could put you at risk for noncompliance and penalties.

    When you include tax laws into the equation, you run a lower risk of issue with changing regulations, you make fewer errors, and you can make strategic tax decisions. You have less to worry about with surprise tax bills and audits as well.

    Gaining an Understanding of Your Financial Health

    A side benefit of tax planning is financial visibility, which gives you a clear view of your business’s financial health to make decisions about how you spend money and make investments that fuel your business growth.

    In addition, you can see how your business’s cash fluctuates throughout the year, giving you insights into the best times of year to make big moves like acquiring assets or launching new products or how to set up a steady flow of income using recurring payments as opposed to larger infrequent sums.

    Finally, when you have a good idea of how you spend your money, you can prepare for possible deductions to save on your tax bill. With that extra cash, you can reinvest into your business to build future growth.

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    Ideal Tax Planning Strategies for Businesses

    Ready to make your tax plan? Here are the best strategies to make taxes a positive factor in your small business growth and profitability.

    Track Spending and Do Regular Budget Checks

    As mentioned, it’s vital to track your spending to keep up with expenses you have. If you let it go until the end of the season, it’s much more difficult to recall your fixed and variable expenses to record them on your tax return. If you track them when they occur, you won’t miss anything important.

    Another aspect of this is budget planning with regular checks. Along with tracking your spending habits, use an app to manage your expenses and budget and identify possible deductions.

    Keep Business and Personal Money Separate

    However you choose to track your spending, it’s important to keep your business expenses completely separated from your personal expenses. Don’t mix the two with a personal bank account that you use to buy office supplies, for example.

    If you don’t have separate bank accounts for your business and personal use, start there. You may want additional savings accounts for both sources. Consider getting a business credit card with rewards or perks, which gives you added benefits and helps you track expenses easily.

    Track Your Deadlines

    There are several tax deadlines you need to keep up with throughout the year. You can set notifications on your phone or on a calendar to make sure you’re alerted to any upcoming deadlines.

    With monthly or quarterly expense check-ins, set notifications in your calendar. Keeping those deadlines at hand will be helpful when your tax filing season comes up. You can even ask your accountant about value-based pricing, which may include year-long bundled services to keep everything in order for a smooth walk across the finish line come tax season.

    Use the Qualified Business Income Deduction

    The qualified business income deduction includes a deduction that’s worth up to 20% of the share of business income for pass-through business owners and 20% of qualified real estate investment trust. This includes qualified items of income from partnerships, sole proprietorships, certain trusts, and S corps.

    There are regulations and limitations with qualified business income deduction, however. If you’re not sure, consult with a tax professional.

    Include Employee Bonuses and Retirement

    Employee bonuses and retirement are valuable benefits for your employees and offer incentives to retain top talent, but they also help you get more tax deductions for your business. If you want to provide bonuses, it’s essential that you finalize any bonuses by the end of the year and pay them out within a few months, according to IRS rules.

    You could set up a retirement plan for employees to reduce your taxable income by the end of the year as well. A 401(k), for example, may offer deductions for the contributions you make for your employees.

    Invest in Tax Software

    Tax software can support your strategy with tools designed specifically for business taxes. You can automate many aspects of your accounting and keep all your documents stored in one central location, ensuring you know exactly how to retrieve them during tax filing.

    With predictive accounting software, such as real estate accounting solutions, you can take control of your taxes throughout the year to manage your deductions, pay any estimated tax payments, report major life changes or events as they happen, and report your income and expenses. It’s much better to keep up with these things throughout the year, rather than trying to remember them all at once at filing time.

    Get Ready for Tax Season

    Tax time may be stressful, but it doesn’t have to be. You may have bigger challenges with business taxes than the average simple return, but having confidence and ensuring a smooth tax season comes from being knowledgeable and prepared throughout the year.

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