Tax Planning for Businesses

By: Rick Fields, CPA

As senior partner for Associates in Accounting, CPAs, one of the “fun” parts of my job is the planning we do for our business clients.  A business that is well structured is formed to serve the needs of its owners, employees and customers.  Understanding those purposes for any business is the first step in properly planning for taxes.

The goal of tax planning is almost universally to reduce the amount being paid.  There are multiple techniques for doing this.  Overall effective planning requires a careful evaluation of each business, and the determination of what techniques can be used to reduce the overall tax burden.

However, tax planning can’t be done in a vacuum.  Often tax planners pursue various recommendations with the goal of reducing taxes “at all costs”.  When the techniques used conflict with the overall financial goals of the company, the “tail wags the dog” as we like to say in our firm – we are no longer providing sound advice in reducing taxes while keeping in alignment with the company’s goals.

How to do this effectively?  There are four basic parts to a good tax plan.

  1. Evaluate the business structure to make sure it is tax efficient. Many aren’t.  Fortunately, this can often be corrected.
  2. Review how the owners receive benefit for themselves. This is usually a combination of compensation, fringe benefits and profit distributions for most company owners.  The proper mix of these can greatly affect the overall amount of taxes that a business and its owners pay.
  3. Deductions have to be reviewed. Many businesses aren’t aware of everything that can be deducted from income.  Reviewing all of the expenses of the business to make sure that all of the expenses of the business are being deducted and that “soft expenses” aren’t being missed is important to minimize taxes.
  4. As a final step, tax planning techniques should be added to the tax plan for the business to reduce taxes further. Retirement and other benefit plans, perks for owners, taking advantage of credit programs – all of these can dramatically make tax payments smaller.

The biggest mistakes that most business managers make in this area is ignoring the process.  Concerns over the cost of developing a tax plan often cause an owner to not pursue planning.  Further, it does involve time and effort on behalf of both owners and managers of businesses – two groups of people who seem to have an inexhaustible to-do list.  But the payoff in benefit from the planning makes the investment worthwhile.

Consider focusing on planning to eliminate the angst out of filing!  Knowing your results before the year ends is an excellent goal.