What is tax planning?

Tax Planning involves implementing various tax and cash flow strategies in order to minimize the amount of taxes paid for a given year. As your CPA, we consider the nature and timing of your recognition of income, capital purchases, expenses and investments to determine the appropriate strategy or strategies for your individual situation. For the small business owner: minimizing tax liability means freeing up cash flow for investment and growth. This allows tax dollars to be a source of working capital.

 

Two basic rules apply:

​

1. Never incur additional expenses to gain a tax deduction.

2. Attempt to defer taxes as much as possible which frees up cash flow.

 

There are four basic types of entity structure:

​

1. Sole proprietorships

2. Partnerships or Limited Liability Company’s (LLC)

3. C Corporations

4. S Corporations

 

The entity structure chosen also has an impact on tax planning. I.e. paying family members out of C Corporation is different than from a sole proprietorship or Partnership.

 

Knowing what the tax law has to offer may increase your bottom line over competitors who do not take the time or initiative.

We suggest that entrepreneurs and small business owners conduct formal year round tax planning meetings to maximize the savings at year end. Tax planning is very difficult for most small business after the year has closed (December 31 for most taxpayers).

 

Tax planning crosses industries lines with the decisions regarding tax reporting and inventory method decisions. It also is industry specific; i.e. restaurant “Tip Credit” or construction industry “domestic production activity deduction”.

 

"Don’t let the ‘tax’ tail wag the financial dog."​

​