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Corporate tax planning is necessary for any business to be able to meet its obligations towards the government, increase its profits and plan by analyzing the performance of previous years. An experienced tax accountant can guide a company through the maze of tax laws, advise on debt reduction strategies, and help invest more money in growth and development.
taxes are inevitable
It is impossible to avoid paying taxes in business. Whenever a product or service is made or sold, a business has to pay tax on a portion of its profits. Taxes allow the government to provide services and protections to its citizens. However, a company can reduce its taxes and increase its working capital with tax planning. A business can grow and be more profitable with more working capital. The company’s accountant should discuss at the appropriate time what types of deductions and write-offs are appropriate for the business.
Two Basic Corporate Tax Planning Rules
There are two key rules in tax planning for small businesses. The first is that the company should not incur additional expenses for tax deduction. Waiting until the end of the year to purchase major equipment is a smart tax planning method, but a business should only use this strategy if the equipment is essential. The second rule is that taxes should be avoided as much as possible. To defer taxes means to legally postpone them until the next tax season. This frees up money that would have been used to pay taxes for that year for an interest-free use.
accounting methods
A company’s accounting practices can affect its taxes and cash flow. There are two main accounting methods, the cash and accrual methods. In the cash method, income is recorded when it is actually received. It means that it is noted when the invoice is In fact paid instead when it is sent out. The cash method can avoid taxes by delaying billing. The accrual method is more complex because it recognizes income and debt when it actually happens Instead when the payment is made or received. It is a better way to chart the long-term performance of a company.
Tax Planning with Inventory Control and Valuation
Properly controlling the cost of inventory can have a positive effect on a company’s tax deductibility. A tax planning accountant can advise how and when to purchase inventory to take maximum advantage 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 during deflationary times and in industries where product value can fall rapidly, such as in high-tech sectors. LIFO is better in times of rising costs, because it values the inventory in stock at a lower value than the cost of goods already sold.
predicting the future by looking at the past
Good tax planning means that a company takes into account the past sales performance of its products and/or services. 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 in terms of the “big picture”, executives can make predictions for the future. Knowing the need for an expansion or reduction makes it easier to plan for it. The company may pause spending, purchase, cut staff, research and development and advertising as needed.
A tax-planning accountant can help a company increase profits, minimize taxes, and achieve growth for the future. Discuss your business needs, wants, strengths, weaknesses and goals with your corporate accountant to develop a tax planning strategy that accounts for all of these factors.
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