December 20, 2013

Why do Businesses Need a Good Tax Planning Strategy?

With the world moving at a frantic pace, your business needs to move with it to stay ahead. So why would the tax planning stay behind. There should be some proper methods to maintain tax so that the business owner who frantically search at the end of the financial year for ways to minimise their tax bills should be less. The business operators need to be more proactive to make the most of the ever-changing tax rules as well as tax-saving opportunities. Ideally, they should implement strategies at the beginning of the financial year to avoid year end scramble.

However, if your business want the best of the tax planning advices, it is better to hire a tax advisor who can provide the best of their knowledge to save your business from the heap of taxes. Tax planning is a process of looking at different tax options which can help you to determine whether, how and when to conduct business transactions so that taxes get considerably reduced or are completely eliminated. If you have not yet thought about consulting a tax planning advisor,it’s high time that you schedule a meeting with them.

Tax planning is an on-going process and is a very valuable commodity. It is important to review your income and expenses every month and hire a tax analyst who can analyse as how to take advantage of the credits, provisions and all the deductions that you are legally involved with. Although tax avoidance planning is legal, reduction of taxes through subterfuge, concealment and deceit are completely illegal. This is because tax evasion is often associated with some fraudulent intent on the part of the business owner.

How a good tax planning strategy can be beneficial?

• Reduces your tax burden
• Defer some income to a later year
• Calculate the tax effect on your purchase
• Schedule your expenses in a beneficial manner
• Consider how the sales fluctuation affects your overall tax
• Consider the effects of your different source of income on your tax bill
• Budget your tax bill
• Control the time when the tax must be paid
• Claim any valuable tax credits
• Control the effects of Alternative Minimum tax.

A good tax planning program includes -

• Learning your business financial objectives and goals
• Your current income, expenses and financial position
• Learning your capabilities and resources to achieve goals
• A realistic program that is easy to understand, easy to follow and detailed steps to instruct what you need to follow
• Program that can be continuously updated as and when required.

Some of the best ways to save business income tax -

Make the most of business entertainment expenditures:

Entertainment expenses are one of the interesting ways to save your tax. Such expenditures are great deductions to add to your tax and save your hard earned money. However, there are few factors to consider before you include them on your tax return. IRS in the year of 1994 allowed only 50% deduction on entertainment expenses. However, you need to have full-proof documentation of these expenses in order for the IRS to accept the deduction.

Pull out cash for qualified dividends or capital gains:
The rates imposed on qualified dividends and on long-term capital gains are significantly more favourable when compared to regular income-tax rates. If business owners can pull out cash from their business that allow it to be taxed as a qualified dividends or capital gains, the maximum tax assessed  against that income will be maximum 15% to 20%.

Invest inside a holding company for your portfolio:

Investing inside a holding company can make sense in the following ways

The cash is already in the corporation

You have significant securities.

Donate securities to charity:

If you donate securities to charity that has appreciated in values you will save more tax than selling those securities to donate cash. This is because any capital gain triggered when you directly donate securities gets automatically eliminated under the tax law. Instead you will receive a donation tax credit to boot.

Restructure your portfolio:

If you are already investing outside of a registered retirement income fund,registered saving plan or tax-free saving accounts taxes can be a huge struggle on the performance of your portfolio. This is because interest income is the most highly taxed type of income. Therefore, it is best to make your interests-bearing investments inside a registered plan. In addition also check how much of eligible dividends you are earning as dividends provides dividend tax credit which can offset the tax owning on those dividends.

If you need a tax planning advisor, check out Wisteria tax consultant’s website to ensure that you not only pay the right amount of tax but also reduce your tax liability as far as possible.


Nick Jonas is a tax consultant and a web enthusiast. He is immensely interested in the field of tax and relevant services. Nick has also carved out a niche for himself as a reputed blogger and provides online consultancy in his favourite field of tax. He suggests you to visit Wisteria tax consultant’s website for more tax-related information.

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