A Retail Business Owner’s Guide To Tax Planning
One of the primary objectives of business owners is to maximize profits. However, taxation is one of the factors that can negatively impact profits. Taxes are financial obligations levied by the government on its citizens to fund public projects and government spending. But, is it possible to minimize the taxes you pay at the end of each year? The answer is yes, through tax planning.
Tax planning involves financial planning to achieve tax efficiency. Tax efficiency involves reducing taxes and taking advantage of tax rebates and exemptions. As a retail business owner, if you’re wondering how to practice tax planning, this guide is for you:
Practice Good Bookkeeping
Taxes are closely tied to your business finances. Therefore, you need to have a good understanding of your business finances. Bookkeeping is an essential accounting practice that involves recording your financial transactions. These transactions include receipts, loan documents, and other financial agreements with different parties.
Regarding taxes, practice bookkeeping by reconciling your balance sheets regularly. Reconciliation ensures that your records are accurate and up to date. This way, you can identify areas where you can take advantage of tax exemptions or deductions.
Since bookkeeping involves keeping financial records, you need a secure storage system. With the rise of digitization, digital storage of financial documents is the way to go. We highly recommend cloud storage systems. Ensure the security of these documents to prevent cyber-attacks that expose your financial data to unauthorized parties. Consider seeking managed IT services Pretoria; these providers offer cyber-security and cloud storage systems.
Hire A Tax Expert
Taxation can be challenging for business owners, especially since they have other core operations to manage. Besides, they may not have enough expertise in tax operations and may make mistakes that result in penalties and lawsuits. Therefore, it’s essential to contact a qualified tax expert who has enough experience in tax operations.
You can contact SharpLLC for tax preparation services. Besides filing your taxes, they’ll identify ideal tax planning tactics that your business can implement to reduce your tax burden.
Acquire Assets At The End Of The Year
Most business taxes are based on your expenses, income, and profits. The higher your profits, the more taxes you’ll pay. Hence, one way to reduce your tax obligation is by reducing your profits. Suppose you project high profits in a given year. In that case, consider buying an asset at the end of the year to reduce your profits. The fewer the profits, the less the taxes you’ll pay. However, you must put the asset in service before the year ends.
Assist Your Workers To Pay Student Loans
Student loans are financial aid given to students to pay their college fees and associated expenses during their stay. Although student loans aren’t taxed, you’ll still pay taxes since they’re perceived as income received.
Therefore, you can reduce your business taxes by assisting your workers in paying off these loans, making you exempt from payroll taxes. On the other hand, your workers won’t get their income deducted to pay the student loans. The result is tax non-payment for both you and your workers.
Adopt Fringe Benefit Plans
Most business owners aim to add their workers’ salaries, especially due to good performance. However, doing this increases the taxes you’ll pay under payroll. You can counter this by adopting tax-free ways to appreciate your workers. One of these ways is by adopting fringe benefit plans. These are benefits that boost a worker’s salary.
Examples of fringe benefits you can adopt include insurance covers such as long-term care, medical, and group-term life covers. These benefits also extend to transportation and childcare aid. These are expenses that workers would’ve otherwise covered from their salaries. However, with the business taking care of them, they have more income to enjoy, and you won’t pay the associated taxes.
Reduce Taxes With Retirement Plans
As a business owner, you can reduce taxes by setting up a retirement plan for your employees. Retirement plans such as a 401(k) or an IRA can help you reduce your tax obligation. Contributions to these retirement plans are tax-deductible, which means that you can reduce your taxable income by contributing to them.
Another advantage of setting up a retirement plan is that it can help you attract and retain employees. With a retirement plan in place, you can offer your employees a benefit that they might not find in other companies. This could improve employee loyalty and reduce staff turnover.
It’s important to note that the type of retirement plan you choose will depend on your business’s size, structure, and budget. Consulting a financial advisor or a tax professional can help you determine the best retirement plan for your business.
Use Accountable Plans
Your business incurs many expenses, some of which are covered by your workers, such as transportation, work lunches, entertainment, and trips. In most cases, you’ll ask your team to pay for these expenses out of their own pockets, after which you’ll reimburse them. However, these reimbursements are considered taxable income.
To reduce taxes, you can adopt accountable plans when it comes to reimbursements. These plans don’t count reimbursements as income, so you won’t have to pay taxes on them.
Tax planning is essential for any business looking to reduce tax payments to the bare minimum. The strategies detailed above are ideal for business owners who want to reduce their taxes. It’s important to consult your tax consultant before adopting any tax exemption strategy.