Many things are turning out to be different in the post-pandemic economy, and that includes your tax plan. It may or may not turn out to be the new normal when we finally clear the pandemic, but at this point, one thing we do know is that many of the rules have changed.
So what does that mean, and how does it dictate and influence tax planning? The first part of that question is impossible to truly know at this point, of course, but it is possible to get some substantial answers to the second half.
What follows is an exploration of some of those answers when it comes to business owners and effective tax planning from the CPA firms they hire. Good tax planners are always ahead of the curve, even in volatile times like these, and they can help you to be proactive rather than reactive when it comes to the role taxes will play in your financial future.
Timing is Everything
For many businesses, tax planning used to be a quarterly affair. The basic idea was to estimate earnings and deductions, make the appropriate payments, then do it again when the next quarter rolled around. A set-it-and-forget-it setup, to put it simply.
Now? Sorry, but there’s no way you should continue to operate that way. Business cycles have been in flux for over two years now, and that’s putting it politely. The pandemic, supply chain issues, sudden wars that change the energy sector completely-it would take a genuine psychic to anticipate all that, and unfortunately, not many business owners are psychic.
What the best ones are, though, is anticipatory. They hire great tax consultants who can review their procedures, pick the best accounting methods, help them anticipate unexpected contingencies, and plan accordingly. The result is better planning, a more efficient approach to taxes and higher profits.
Strategic Tax Plan
Now let’s talk specifics. Planning specifics, to be exact. Many business owners don’t know it, but there are major strategies to lower the tax burden. Things like equipment purchases lower tax bills while simultaneously meeting business needs—and making their business more efficient in the process.
The tax accountants they hire should know all about it, though. Depreciation deductions may be boring to those who don’t find the tax code to be a page-turner, but the money they add to your bottom line can be a real difference-maker.
At the very least, you should have your tax planner do a cost segregation study on your existing facilities. And if your tax planner isn’t aware of the benefits that may come with that, then maybe it’s time to make a change.
Get the Credit You Deserve
Another under-appreciated way to improve your bottom line is tax credits. Unlike deductions, which lower your taxable income amount, tax credits represent a dollar-for-dollar reduction of your tax bill.
So how do you get them?
Fortunately, there are all sorts of ways. Going green, changing or expanding your hiring practices and entrepreneurial discovery efforts are just a few of the things you can capitalize on to be eligible. And then there’s the employee retention tax credit, which is a major boon that should absolutely be on your tax-planning wish list.
Once again, the key to making the most of these is to lean hard on your tax planner, who should know which ones you qualify for and which ones are out of bounds.
No one wants to talk about succession planning. It’s considered bad form to discuss and plan for certain worst-case scenarios, and succession planning is at or near the top of the list when it comes to that sort of thing.
It does matter, though. Why? Because solid succession planning goes way beyond the transfer of a business.
It touches on things like retirement contributions, estate planning, creating an exit strategy, and a variety of other issues that can make or break you when you decide it’s time to decide the long-term future of your business.
The Innovation Question with your Tax Plan
We’ll close out with one last question: what common thread runs through everything that’s just been covered? Sounds like a tough question when you first consider it, but the answer is actually simple-innovation.
Tax accountants aren’t exactly known for being innovators, but when it comes to the details of using planning to improve your well-being and your bottom line, they absolutely have to be.
And the best ones are-they specialize in profit-led planning, like here at Phillips Business Group. Find out more about our tax planning services right here.