Tax Planning Strategies for San Diego Small Businesses

 

Many small business owners are good at performing their core business activities and often overlook the importance of proper tax planning. Small businesses need to do tax planning each year. In order to be in compliance with applicable tax laws, the process of tax planning for business is utilized so as to eliminate or lessen tax liabilities. Tax planning examines the best, of various, options as to how a business or person should conduct transactions and other tax-related affairs.  Unfortunately, many San Diego small business owners neglect even thinking about their taxes, let alone thinking about tax planning, until tax deadlines are right around the corner and they need to set an appointment to meet with their local CPA or accountant.  The crucial aspect of tax planning, however, is that it is an ongoing, and practically daily, process whereby solid and valuable tax recommendations need be seamlessly implemented.  

  tax planningSolid and reliable tax advice is a commodity as valuable as gold.  Where do you find this valuable advice though?  Highly beneficial resources are your local enlisted tax advisors or CPAs who will walk you through the process of your daily, weekly, monthly and annual income and expense reconciliations, along with the development of your financial statements.  

Some Crucial Facts Regarding Tax Fraud

The overall idea of analyzing your business’ numbers is for you to take advantage of all legal deductions and credits that are available to you based on applicable tax laws.  This is often called “tax avoidance”- the process by which legal methods are employed to reduce your tax obligations.  On the flip side, we have “tax evasion” which uses dubious tactics such as concealment, subterfuge or concealment in an effort to avoid tax obligations.  Normally, the difference between “tax evasion” and “tax avoidance” is the obvious presence of fraudulent intent on the part of the business owner, in the eyes of the IRS.  

There are four primary areas that the IRS will focus on when determining the presence, or lack thereof, of potential fraud.  Let’s take a look:

  1. When there are disconnects between your business’ reported corporation returns and the amount that you have filed on your respective financial statements.  Often, such discrepancies occur when your business does not maintain proper accounting records (something that can easily be done using QuickBooks.)
  2. When your business fails to report supporting figures such as daily business receipts. Your business is also in non-compliance when shareholders, when applicable, do not report dividend income.  
  3. When there is an illegal allocation of income to taxpayers, those usually close to the business owner, who are in lower tax brackets and can thus avoid higher tax rates.  
  4. When your business improperly, and often grossly, overstates expenses like charitable donations or business travel expenses- neglecting to file the proper verification of these costs.  

Some Crucial Tax Planning Strategies

As suggested, there is hope and there are ways to maximize your small business’ profit in a legal fashion.  Some of these ways focus on your personal, individual tax situation, and others focus on your small business’ tax predicament.  Either way, here are just a few of the goals hoping to be achieved by tax planning with your local San Diego CPA:

  • Tax Credits – claim as many as you legally can.
  • Tax Rates – focus on being in the lowest legal, tax bracket possible.
  • Taxable Income – try to minimize this figure as it determines your tax bracket.
  • Timing – be on top of and in control of when and how you pay your taxes.
  • Alternative Minimum Tax (AMT) – know the implications of this tax and try to control its repercussions.

Steps to Effective Tax Planning

Planning for your taxes will require a few steps on your part:

  1. Employ the services of a qualified CPA because he can do most of this arduous and complicated work for you and your business.
  2. Together, estimate your business and personal income for the next several years.   Remember that some tax planning strategies may help you in some areas of tax laws, but be detrimental in others.  
  3. You don’t want to be in a higher tax bracket than necessary, so estimate your tax bracket for these next few years.  

No predictions can possibly be perfect, but the more awareness you have on your cash flow, revenue and income, the better your odds are at successfully navigating the tax world.  

Just a Few More Simple Tips

Take a look at your business, entertainment costs, business automobile deductions and home office expenses. 

Business Entertainment Expenses

Assuming you follow important business, entertainment tax guidelines, you can significantly lower your tax obligations.  The key to determining if your entertainment costs fall into the deductible category, you must be certain to discuss business matters before, during and after a meal or similar expense.  The conditions for discussion must also be conducive to discussion- don’t have your business meeting at a baseball game; instead chose the intimate setting of a restaurant.  Do all of this and the IRS will allow you to deduct up to 50% of your entertainment costs.  

Automobile Deductions

Depending on the nature of use for your car, you may be able to deduct costs incurred due to travel for clients or business outside of your normal workplace.  When taking a deduction for your automobile use, you can either file for a deduction based on actual expenses or a deduction based on mileage.  Choosing which way works for you can be difficult, so contact your CPA for advice on the best method to choose.  

Business Office Deductions

The business office deduction is one of the most difficult of the deductions to comprehend.  However, the ends will justify the means in this case and, again, work with your CPA because he may be able to tell you some little known tips.  

Conclusion

There cannot be enough emphasis on the importance of being proactive with your year-end tax planning.

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