Tax Planning For
planning is the process of looking at various tax options to
determine when, whether, and how to conduct business and
personal transactions to reduce or eliminate tax liability.
Many small business owners ignore tax planning. They
don't even think about their taxes until it's time to meet
with their accountants, but tax planning is an ongoing process
and good tax advice is a valuable commodity.
It is to your benefit to review your income and expenses
monthly and meet with your CPA 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 IRS's finding that there was fraudulent
intent on the part of the business owner.
The following are four of the areas the IRS examiners
commonly focus on as pointing to possible fraud:
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.
Claims 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
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
Countless tax planning strategies are available to small
business owners. 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 very 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 are, the better the odds that your
tax planning efforts will succeed.
Financial Services at Sullivan & Company, CPAs
Sullivan leads our Financial Services Division and is here to
help you navigate your financial future. As an Investment
Advisor Representative, he is able to provide an
independent opinion on the investments you already own or
are considering buying.
We can structure a portfolio
based on your risk tolerance or we can help you decide how
to invest in your company 401(k) plan. We work with each
client to identify their concerns and to provide solutions
according to their situation.
is also experienced in company retirement plans. If you own
a business that does not have a plan; we can discuss your
options and set up a plan that fits your company.
If your business already has a
plan; we offer a free evaluation of the plan to ensure that
it is up to date and working well for you and your
Our goal is to provide personal, unbiased and independent
advice to help you make well-informed decisions about your
financial life and investments.
Contact Paul Sullivan or Jordana Para to set up a free initial
consultation (301) 657-8080.
And as always if you have any questions about accounting or
investments and how they effect you or your business, please give
us a call. We
can help guide you in the right direction.
Remember you can call our offices if you have any
questions about these or any other accounting, tax,
financial planning or insurance related issues, at
Regards, Paul Sullivan, CPA
President, Sullivan & Company