An important part of running a business is to know at least something about tax. Not only because it is a legal requirement to pay it out of your gross profits but because you might even save yourself money from knowing it. To know about tax in detail, or have someone else on board who does, is vital to sustaining a business’s profitability. There are companies who specialise in helping with tax planning strategies to assist with this. These companies will come up with strategies which help you to manage your business in a tax-saving way. Throughout the year and right up to your financial Year End.
What are Tax Planning Strategies?
Tax planning primarily involves three principle methods: Reducing overall income, increasing the amount of tax deductions the business makes throughout the year, and having the knowledge to take best advantage of the tax credits available.
Strategies to Reduce Your Tax Bill
With this in mind, we should consider examples of ways in which you might reduce your income. Typically, these strategies might include contributing to a retirement fund, deferring income if you are predicted to make less next year, and hiring a professional who can come up with other strategies and ideas in relation to the running of your particular business. Each person or business will be different depending on circumstances that can help reduce their income for tax purposes.
The benefits of itemizing your deductions will maximize your tax savings. The benefit is that it will allow you to claim a deduction which is larger than the standard deduction. If you do not keep track of your expenses properly you will be missing out on the tax that you could save.
It is vital to know your tax deadlines as otherwise you will incur fines which will in turn increase you tax bill and not put your business in favour with authorities.
Tax credits will vary depending on country and state but knowing them will also reduce your tax bill. For instance, how many Americans know about the American opportunity tax credit (AOTC). This is a credit that is allowable for qualified education expenses that are paid for an eligible student’s first four years in higher education. The good thing about this tax credit is that if this credit brings the amount of tax owed to zero, the claimant can have 40 per cent of the remaining credit refunded to them. In the UK, tax credits redistribute income to people earning lower wages. Two types exist: child tax credits for those with children and working tax credits paid to those on the lower income. An interesting statistic is that 70% of families claiming tax credits are in work. So, do not miss out on tax credits that apply to both your business and personal situation.
There is a useful article that you can read on reducing your tax bill this year.
What Difference Can a Professional Tax Planner Make?
Despite how much reading you have time for, it is not always possible to take account in your mind of all the ins and outs of tax finance. Many business owners will simply read over them and just not understand how they can apply to their business. For this reason, it is prudent, wise even, to consult a professional who will know the rules inside out. Then, better still, a strategist who can work out what you should be doing throughout your financial year.
So, will a professional on board, you can look towards a favourable tax outcome for your business and ultimately a greater income for your family.