Tax Planning Strategies for Small Business

Are You Tax Time Ready? Here Are 8 Tax Planning Strategies to Get Started

Tax season sneaks up fast. For many business owners (and individual tax filers!), it’s an overwhelming whirlwind. At the end of it, you may vow to prepare better for next year. And then … whoops! It’s next year already. Kick procrastination and stress to the curb with these tried-and-true tax planning strategies.

8 Tax planning strategies 

Tax planning strategies for small business can help you get organized, slash your tax bill, and avoid pesky late filing fees. Here are eight strategies to help you get tax time ready.

8 tax planning strategies

1. Choose the right structure for you

When you first start your business, you need to choose a structure. And at some point, you may decide to change your business structure to something more suited to your company. After all, a lot rides on your business structure, including tax liability and personal liability. 

Whether you’re choosing your first business structure or changing things up, you need to do your research. That way, you can select the right structure for you.

The following are business entities you can choose from:

  • Sole proprietorship
  • Partnership
  • Limited liability company (LLC)
  • Corporation
  • S Corp

The best business structure for business depends on several factors. Consider whether you’re running your business with someone else, the level of control you want, and how important limited liability is to you. And, think about your business trajectory. A structure that works best when starting out (e.g., sole proprietorship) may not work as your business grows. 

When it’s time to file taxes, your business structure determines what forms you use, your tax deadline, and whether you’re subject to pass-through taxation or double taxation. That’s why choosing your business structure is the first step of your tax planning strategy—and an important one at that! 

2. Mark your calendar 

Tax planning strategies for companies should also include one simple task: Marking your calendar. Nobody wants to be hit with late penalties or interest, right?

Right. That’s why knowing the due dates for your business structure’s tax form is a key tax planning strategy. So, when are business taxes due? Keep the following dates in mind:

Due DateBusiness Structure
March 15Partnerships 
Multi-member LLCs
S Corps
April 15Sole proprietorships 
Single-member LLCs
Corporations (and multi-member LLCs taxed as corporations)

Have a tax year that ends on a date other than December 31? You may have different due dates. Partnership and multi-member LLCs have a due date of the 15th day of the third month after the tax year ends. Corporation tax returns are due the 15th day of the fourth month after the end of your tax year. However, corporations with a fiscal tax year ending on June 30 must file Form 1120 by the 15th day of the third month after the end of the tax year (i.e., September 15). 

Mark your calendars, set alarms, and do whatever you need to remember to file by your tax deadline. 

Additionally, familiarize yourself with your business structure’s tax form. For example, sole proprietorships file Schedule C, whereas corporations file Form 1120. 

3. Separate personal and business funds

Are you combining your personal and business funds? Tax planning strategy 101 advises against it. Mixing personal and business funds can get messy and disorganized. And when your records are messy and disorganized, tax time can be oh-so difficult.

Create a separate bank account for business to help you plan for tax season. Doing so makes it easier to file your business tax return and can legitimize your business and help you avoid overspending. 

4. Hang onto records

To file your business tax return, you need records. Otherwise, you won’t be able to detail your business’s gains and losses accurately. Organized records can make it easier to file your taxes and back up your claims.

Business records include:

  • Receipts
  • Bank statements
  • Financial statements
  • General ledger
  • Invoices
  • Credit card statements

If you don’t already, put a system in place to organize your records. Consider organizing records electronically to avoid damaged or lost records. For optimal storage, use accounting software that lets you manage receipts and documents. That way, you can securely upload receipts and attach them directly to your transactions. 

Think you can ditch last year’s records? Think again. Usually, the IRS advises that you hang onto records for at least three years—and maybe longer, depending on your situation. When in doubt, just keep the records.

5. Defer taxable income 

Want to find ways to cut down your tax bill? One strategy is to defer taxable income to future years. 

Small businesses that use cash-basis accounting can defer taxable income by delaying revenue receipt until the next year. Let’s say you provided services for a customer in December. You might defer income by waiting until January to invoice the client. 

6. Claim those tax credits and deductions 

No tax planning strategy is complete without talking about tax credits and deductions. Both credits and deductions can lower your total tax bill. A tax credit is a dollar-for-dollar tax reduction. A tax deduction lowers your business’s total taxable income. 

Popular tax credits and deductions for small businesses include:

  • Employer-provided childcare tax credit 
  • Work opportunity tax credit
  • Small employer health insurance tax credit
  • Business mileage tax deduction
  • Home office tax deduction
  • Business loan interest tax deduction

7. Use accounting software

Tracking transactions in a spreadsheet is so 1999. Preparing for tax season is easier than ever—thanks to online accounting software.

Software makes it easy to: 

  • Track your expenses and income
  • Record payments
  • Store accounting records
  • Generate financial reports

You can also automate tasks through features like automatic bank transaction imports, the ability to accept credit card payments, invoicing, and more. 

Patriot’s accounting software is easier and more affordable

Who knew you could have both? Get all the features you need to track business expenses, money, and invoices.

All in all, use accounting software to streamline the way you manage your books. That way, you can review organized and accurate records with your accountant … which brings us to the final tax planning strategy.

8. Hire an accountant 

Need an expert to get your ducks in a row for tax time? An accountant can be an asset during tax season and beyond. 

At tax time, an accounting professional can help you:

  • Optimize the tax credits and deductions you claim
  • Verify that you’ve filed your business tax return forms correctly
  • Understand your accounting records and reports
  • Stay on top of filing deadlines 

You may consider working with an accountant beyond tax time, too. Regularly meeting with an accountant can help analyze your financial health, grow your business, and plan for your future. 

Ready for a better way to plan for tax season? Sign up for Patriot’s online accounting for an easier way to track business expenses, money, and invoices. Get your FREE trial today! 

This is not intended as legal advice; for more information, please click here.

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