Tax planning strategies for businesses are essential for minimizing the money paid to the government. As the year ends, business owners scuttle to their tax specialists for advice and tips on reducing the tax amount. These last-moment solutions of harvesting losses with underperforming stocks or spending money in flexible spending accounts do work for companies. However, strategies for tax saving yield better results when applied all year round in the business to not only save money in the current fiscal year but also gain a head start for the next year.
Some common tax saving strategies for small, medium, and large sized businesses that tax specialists recommend are as follows.
image source: https://pixabay.com/
Utilize expenses
Tax specialists suggest this to be a good tax planning strategy for all kinds of businesses. It includes offsetting the income with expenses and is generally employed to higher tax rates. The technique consists of pushing the revenue to the next year to pull the expenses to the current year. Having an insight into how much your company will make by the end of the year will help in determining the appropriate plan to maximize expenses which will in turn help in reducing the tax amounts. The estimate made at the beginning of the year should be referred to all year round to adjust the revenue value for the tax adjustment. However, care should be taken that while you spread your income over the years, you should always stay under the higher marginal tax brackets.
Manage RRSP and TFSA
Another tax-saving strategy for businesses, especially for sole proprietors and partners, is managing the Registered Retirement Savings Plans (RRSP) and the Tax-Free Savings Accounts (TFSA). RRSP contributions made by a person depends on their income trends from year to year and are based on the marginal tax rate. The icing on the cake is that all the RRSP contribution from a year can be carried forward to the subsequent years. Thus, for years with better income, the RRSP contributions are significantly higher.
TFSA, as the name suggests, allows a person to shelter any savings or investment revenue from the taxes. TFSA, however, comes into picture after you have maxed out the RRSP contributions.
Include the family
Including the family involves putting the kids and the spouse on the payroll. This is a very under-utilized strategy but paying your kids for the bonafide services they offer in your business can lead to significant tax savings. This comes with additional benefits if you pay your child through a sole proprietorship and the child is less than 18 years of age. In such cases, the business is completely exempted from holding FICA and from payroll taxes. Care should be taken, however, that proper procedures are followed to create bank accounts for kids to ensure the legal and accurate payroll services. The inclusion of spouses can be considered only if the spouse is ready to contribute money to the company retirement plans.
There are a lot of other options to wisely inculcate a tax-saving strategy for businesses. Tax specialists offer exclusive counseling and tax accounting services for small businesses. A lot of factors need to be considered while determining the right kind of tax strategy for a business. Hence, appropriate counseling should be taken to decide on a profitable and a legal tax-saving strategy for a company.
