Corporate Tax Planning Is Not an Option, It Is a Must
Corporate tax planning is necessary for any business to be able to meet their obligations to the government, increase their profits and to plan by analyzing past years’ performance. An experienced tax accountant can guide a company by the maze of tax laws, advise about debt-reduction strategies and help put more money into growth and development.
Taxes are Unavoidable
It is impossible to avoid paying taxes in business. Any time a product or service is made or sold, the business has to pay taxes on a portion of its profits. Taxes allow the government to give sets and protection to its citizens. However, a company can lower its taxes and increase its working capital with tax planning. A business can grow and become more profitable with more working capital. The company’s accountant should discuss what kinds of deductions and write-offs are right for the business at the proper times.
Two Basic Corporate Tax Planning Rules
There are two meaningful rules in tax planning for small businesses. The first is that the company should not take on additional expenses to get a tax deduction. One smart tax planning method is to wait until the end of the year to buy major equipment, but a business should only use this strategy if the equipment is necessary. The second rule is that taxes should be deferred as much as possible. Deferring taxes method legally putting them off until the next tax season. This frees up the money that would have been used to pay that year’s taxes for interest-free use.
A company’s accounting methods can influence its taxes and cash flow. There are two main accounting methods, the cash and the accrual methods. In the cash method, income is recorded when it is truly received. This method it is noted when an invoice is truly paid instead of when it is sent out. The cash method can defer taxes by delaying billing. The accrual method is more complicate because it recognizes income and debt when it truly occurs instead of when payment is made or received. It is a better way of charting a company’s long-term performance.
Tax Planning with Inventory Control and Valuation
Properly controlling inventory costs can positively affect a company’s tax deductions. A tax planning accountant can advise how and when to buy inventory to make the most of deductions and changes in stock value (valuation). There are two main inventory valuation methods: first-in, first-out (FIFO) and last-in, first-out (LIFO). FIFO is better in times of deflation and in industries where a product’s value can drop steeply, such as in high-tech areas. LIFO is better in times of rising costs, because it gives inventory in stock a lower value than the prices of goods already sold.
Predicting the Future by Looking at the Past
Good tax planning method that a company takes the past sales performance of their products and/or sets into account. In addition, the state of the overall economy, cash flow, overhead costs and any corporate changes need to be considered. By looking at past years according to the “big picture,” executives can forecast for the future. Knowing an expansion or a cutback will be needed makes planning for it easier. The company can stagger expenses, purchases, staff reductions, research and development and advertising as needed.
A tax-planning accountant can help a company increase profits, lower taxes and unprotected to growth for the future. Discuss your business’s needs, wants, strengths, weaknesses and goals with your corporate accountant to develop a tax planning strategy for all of these factors.