Tax planning refers to exploring a variety of tax options to determine how a business should be run to reduce or entirely eliminate tax liability.
It is common for small businesses to neglect tax planning until and unless they have to meet their accountants once every year. However, it is not a favorable practice. Tax planning is an important aspect when it comes to a small business’ growth and success. Hence, it is always a wise idea to do tax planning and strategizing a priority.
How does tax planning help? To begin with, sound tax planning will ensure that the amount of taxable income is reduced. In addition to this, it helps lower the tax rate.
Moreover, it ensures that all tax credits and deductions available are utilized to the fullest.
As a small business owner, if you feel a tad lost, don’t fret because we have got you covered in this article. Below are some tax planning strategies that small businesses should consider in 2020 if they haven’t done so.
1) Pre-pay some of the expenses
While you are in this financial year, try and pre-pay your expenses for the upcoming financial year. This can include things like rent and insurance, or subscriptions and lease payments
2) Review the debtors
It is high time that you review all your debtors. In case there are any debts that are unrecoverable, make sure to write them off. However, your business will have to show that it made genuine efforts to recover those debts.
3) Review your investment structures
Some structures can benefit from reduced tax rates; hence, make it a point to review your personal assets as well as the business structure. For instance, a business structure with a capped tax rate can result in quite a big difference if the investments are producing a significant number of incomes.
4) Defer income
Another strategy is to hold back issuing any more invoices, as well as receiving any debtor payments. Following such a strategy will push tax payable to upcoming income years.
5) Investment property depreciation
If you happen to own a rental property, we suggest you arrange and prepare a Property Depreciation Report if you have not done so as of yet. This is because it will allow you to claim the maximum amount when it comes to depreciation. Additionally, it will allow you to write off deductions on the said rental property.
6) Low-value pool and obsolete stock
You can pool in these assets and depreciate them at higher rate levels, written down to a lower value.
Speaking of the obsolete stock, it can be written off, too, owing to it being of no value. Both of these strategies can allow you to claim a tax deduction this very year.
7) Tax consolidation
You might want to consider consolidating the few companies you have got for tax purposes before the year ends. It will result in a single tax entity that will make room for you to offset profits and losses from other different entities.
Any opinions are those of the author and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.