For many, taxes tend to be a huge liability, especially for small and medium-sized businesses. Thankfully, there are ways to reduce these liabilities through effective tax planning. However, it’s vital to remember that tax planning should not be confused with tax evasion. You’re not avoiding tax but instead lowering costs and using tax laws to reduce costs legally.
The tax planning process optimally uses tax exemptions and other benefits to reduce business tax liabilities. The most significant advantage of this process is that the money saved can be returned to the business as extra funds. Tax planning, therefore, can be seen as a way to ensure economic and financial stability.
5 Steps to Consider in the Process of Tax Planning
1. Organize Your Documents
If your financial documents are scattered around the office, you may have difficulty finding them for tax season. That’s why it’s vital to keep them organized. For tax planning to be successful, you must keep records of all transactions that directly or indirectly affect tax. You can start a filing system to help you monitor and safeguard these documents.
2. Understand all the Requirements
Being proactive is key to understanding and claiming tax deductions. You must evaluate all possible ways for a tax deduction and understand the legal requirements on how to get them.
3. Evaluate all the Tax Credits Being Offered
Tax credits are different from deductions as credits have limited availability and duration and only cover certain expenses. However, the benefits you can get from tax credits are significant because you get to save up on income taxes.
4. Use an Individual Retirement Account (IRA)
It’s best to be smart with money. Instead of keeping your savings in a regular savings account where you accrue taxable interest, it would benefit you to use an IRA. This way, you can avoid paying tax on interest and save more money.
5. Effective Time Management
Time management is very crucial when it comes to the process of tax planning. If you want to utilize every opportunity to reduce tax, you’d have to start early and not compile all the work you have to do until the deadline approaches.
Start Tax Planning with NJ’s Top Accounting Firm
Tax season is quickly approaching, and now is the best time to start planning with NJ’s top accounting firm. Contact Tobin & Collins today!