Nashville Tenn. CPA Firm with Your Business in Mind.
Taxes can be confusing. You could be trying to complete personal taxes. You could be trying to complete business taxes. Either way, tax laws are hard to understand. Tax laws are always changing. Changes may also occur in your personal budget. Changes may occur to a business budget. With all these changes, planning is vital.
Tax planning takes a look at strategies that can be used to lessen the amount of tax that has to be paid for a tax year. It can help you avoid paying some taxes altogether. Tax planning starts before the next tax year. Tax planning should be happening through the tax year as well. Even with the best plan, major changes can happen to a budget that planning can not foresee.
The first step for tax planning is to know the tax bracket that will be applied. There are different tax brackets for personal taxes. You may be filing single, single head of household, married, and married filing separately. You also need to take into account any capital gains taxes or trusts and estate taxes. There can also be life-changing events such as purchasing a home, having a child, or getting married. There are different tax brackets for businesses depending on the type of business. You will pay differently if you are an LLC than you will if you are a corporation. The main goal is to estimate the amount of taxes that you are going to owe. You can then plan the rest of your strategies.
As a business, there are several parts of tax planning that need to be looked at. First, you need good record keeping and accounting. The strategy you choose depends on the accounting method you use. You may not have any inventory and decide to use a cash method. Your income and expenses are in real time. You can flex the amount of income or expenses for your business with this method. The other method, accrual method, is more complicated. It may mean paying taxes on income not collected yet.
Another part to planning is accounting for your inventory. This can play a big role in tax savings. There are several methods for calculating inventory. The two most popular methods are FIFO (first in, first out) and LIFO (last in, first out method). There are good reasons to use both. Tax planning is important with inventory. You make sure the best method is used for your business at the time to get the best tax breaks.
Other parts to think about are hiring family members, providing benefits, and investing. When you are self-employed, you may want to think about the benefits of hiring a spouse or a dependent child to lower tax owed. Benefits can also be given to employees to lower tax owed. As a rule of thumb, a business never wants to have extra expenses just to get a deduction on taxes.
Tax planning, for personal or business taxes, needs to be a priority to ensure that you are saving money. It is complex. It needs to be done in advance to the tax year. It needs to be revisited during the tax year.