Tax Planning For Small Business Owners

Tax Planning For Small Business Owners

Tax planning is a process of looking at various tax options in order to determine when, whether, and how to conduct business and personal transactions so that taxes are eliminated or considerably reduced.

Many small business owners ignore tax planning, and don't even think about their taxes until they're scheduled to meet with their accountant; but tax planning is an ongoing process, and good tax advice is a very valuable commodity. You should review your income and expenses monthly, and meet with your Accountant or tax advisor quarterly to analyze how you can take full advantage of the provisions, credits and deductions that are legally available to you.

 

Although tax avoidance planning is legal, tax evasion - the reduction of tax through deceit, subterfuge, or concealment - is not. Frequently what sets tax evasion apart from tax avoidance is the IRD's finding that there was some fraudulent intent on the part of the business owner. The following are four of the areas most commonly focused on by IRD examiners as pointing to possible fraud:

A failure to report substantial amounts of income, such as a shareholder's failure to report dividends, or a store owner's failure to report a portion of the daily business receipts.

A claim for fictitious or improper deductions on a return, such as a sales representative's substantial overstatement of travel expenses, or a taxpayer's claim of a large deduction for charitable contributions when no verification exists.

Accounting irregularities, such as a business's failure to keep adequate records, or a discrepancy between amounts reported on a corporation's return and amounts reported on its financial statements.

Improper allocation of income to a related taxpayer who is in a lower tax bracket, such as where a corporation makes distributions to the controlling shareholder's children.

Tax Planning Strategies

There are countless tax planning strategies available to a small business owner. Some are aimed at the owner's individual tax situation, and some at the business itself. But regardless of how simple or how complex a tax strategy is, it will be based on structuring the strategy to accomplish one or more of these often overlapping goals:

• Reducing the amount of taxable income
• Lowering your tax rate
• Controlling the time when the tax must be paid
• Claiming any available tax credits
• Controlling the effects of the Alternative Minimum Tax
• Avoiding the most common tax planning mistakes

In order to plan effectively, you'll need to estimate your personal and business income for the next few years. This is necessary because many tax planning strategies will save tax dollars at one income level, but will create a larger tax bill at other income levels. You will want to avoid having the "right" tax plan made "wrong" by erroneous income projections. Once you know what your approximate income will be, you can take the next step: estimating your tax bracket.

The effort to come up with crystal-ball estimates may be difficult and by its nature will be inexact. On the other hand, you should already be projecting your sales revenues, income, and cash flow for general business planning purposes. The better your estimates, the better the odds that your tax planning efforts will succeed.

Contact UHY Dawgen Chartered Accountants for further info:

Email:info@uhy-ja.com

Unit 34,Winchester Business Centre

15 Hope Road, Kingston 10

Tel:1876-9084007/7542074

Fax:1876-7540380