Taxes are a major part of doing business, but it’s important to keep in mind that taxes are not one-size-fits-all. There are many different types of businesses, each with its own unique tax situation. Each year, there are also changes to personal tax rates and adjustments to business tax credits and deductions. In this article, we’ll discuss some general strategies for planning ahead when it comes to your business’ tax obligations.
Business tax planning is a year-round process.
Tax planning is a year-round process. You should be thinking about tax issues from the time you start your business, through its growth and maturity, to its eventual sale or liquidation.
Tax planning can be especially important for new businesses because of the so-called “momentum concept”–that is, if you are in a higher tax bracket when you start your business than when it becomes profitable (or vice versa), the difference in rates can have long-term effects on the amount of income that will flow through to your personal return each year.
You can often reduce your taxes by changing the way you do business.
You can often reduce your taxes by changing the way you do business. Examples include:
- Changing from a sole proprietorship to a corporation or partnership. This is one of the most common ways for businesses to save money on their taxes, because corporations and partnerships don’t pay tax at the individual level, as sole proprietorships do. If you’re thinking about making this change, though, be sure that it makes sense for both legal reasons and practical ones–you may need help from an attorney or accountant who specializes in business law before doing so!
- Taking advantage of tax breaks available only through certain types of organizations (such as charities). For example, if you run an animal shelter out of your home and donate all its profits every year without taking any salary yourself then there’s a chance those donations could lower your taxable income enough so that it saves money overall even though they mean paying more money upfront during tax season each April 15th (the date Americans traditionally file their annual tax returns).
Changes to personal tax rates will have a big impact on your business tax planning.
The changes to personal tax rates will have a big impact on your business tax planning. If you are an employee, the higher personal income tax rate may result in less take-home pay. This could affect how much money you have available for spending and saving, which will have an impact on how much cash flow your business has access to.
You may also want to consider increasing contributions into your RRSPs or TFSAs if this allows more deductions against taxable income.
Payroll taxes can be very high, especially if you have employees.
Payroll taxes are a big expense for businesses. They’re often overlooked in tax planning, but you should be aware of them as you’re making decisions about your business finances.
Payroll taxes include:
- Social Security and Medicare (FICA) taxes, which are withheld from employee wages and paid to the IRS on behalf of your employees. These two funds help fund retirement benefits and health care coverage for retired workers, respectively.* Federal unemployment insurance (FUTA), which is paid by employers when they hire new employees or when they make wage payments to existing employees beyond what’s required by law.* State unemployment insurance (SUI), which varies by state but generally requires an employer to contribute money into an unemployment insurance fund based on its payrolls during the preceding calendar year
Taxes are complex, and it’s important to plan ahead
Taxes are complex, and it’s important to plan ahead. Taxes can be very high for small businesses, especially if you have employees.
Tax planning is a year-round process that requires up-to-date information about your business’s financial situation and tax law changes.
If you’re a business owner, it’s important to keep up with the ever-changing tax code and plan accordingly. The good news is that there are lots of ways to reduce your tax burden and make sure your business is as profitable as possible.