Why Is Good Tax Planning Important?

When starting an activity, we consider the location, products, facilities or services we offer. All of them essential, but no less than others to which we pay less attention and in some cases we completely ignore, such as correct tax planning. Tax planning aims to lawfully minimize the tax burden of a company, whether newly created or not, and thus allow an accurate forecast of the treasury to facilitate decision-making. The importance of using tax planning conditioned and adapted to your company’s various socioeconomic potential is given by the very spectrum of business strategies on which its own performance is based. Therefore, it is a vital tool when it comes to controlling and paying taxes, which are framed within the own and general international legislation that controls it and which it is necessary to know how to comply with them correctly. Let’s review three specific topics in tax planning that can help us save taxes!


Tax Planning: Main Legal Frameworks

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Regardless of legal nature, any business is primarily associated with the macroeconomic environment in which it is represented.  Any good planning strategy must find a link with the international, national and local aspects, stand on all commercial ups and downs, and even consider the benefits that the legal framework offers. Although the latter may seem surprising, the truth is that tax planning is an activity open to this type of economic possibility. More than just economic theories in themselves, it is our facts and our own virtual performance, which in themselves will determine the magnitude of the final tax to be paid; it is then there where preventive actions come to take part.

The Optimization of Tax Costs and Its Importance in Tax Planning

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Usually, there is a symbiotic relationship between the elements that we know as direct and indirect taxes. This is nothing more than a virtual representation of the methodology on which the national legal framework strategies usually work. In this area, the possibility of assuming all the financial costs that come from the same productive act is highly valued. Given this case, the underlying intention behind it is the importance of working on the rigorous guidelines of fiscal taxes in the same way as public, legal and accounting behaviours are managed. That translates into correcting them on the company’s estimated net profit, keeping it under passive control and adequate progress according to the conditions that allow our company to constitute a whole entity of sagacious and efficient autonomy.

Preventing Treasury Problems: An Ace in the Legal Market

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It is prevalent within the current financial management of consultancies to be frequently intruded by the unexpected advent of high tax values ​​on the tax receipt. These may involve the different government requirements on which it is included, such as VAT, personal income tax or Corporation Tax, putting the same economic security in check and pushing it into a financial loan situation or unexpected investment. An option to resort to that increases the absolute liability of it. All these situations can be avoided according to the planning of an adequate legal-fiscal framework, which is capable of establishing the causes that could constitute a threat to its legal stability, either due to ignorance, voluntary imposition or imbalance in the capital. The strategies to be used in the elaboration of said methodology must therefore go towards forming a consequent objective: The protection of the accounting performance of the same through the adequate exercise of legal planning.

If you have unexpectedly received an incredibly high amount to pay after the fiscal year’s close, perhaps correct tax planning was not carried out. Get in touch with the experts at  ProfessionalBookkeepers.ca for all your tax planning and preparation needs. 

Making Sense of Business Tax Preparation

Contrary to popular beliefs, it doesn’t take much to be a run business. If you want to run a real business, you simply have to follow all the regulations in your state and country, ensure you keep business and personal records separate, and show you are trying to make a profit. Filing Tax Return is just as much a part of this process and must not be overlooked.

Since filing tax returns might be intimidating to a novice, we’ve put together a list of 4 things we believe is important to know to be able to prepare one appropriately.

Who Has to File a Business Tax Return?

A simple answer would be that even the smallest of companies have to file a business tax return . As a rule of thumb, remember that as long as the company has an income, it will have to file an income tax return. Even if the company makes a loss or was inactive, it still has to file a tax report. Failing to do so may even result in the company incurring fines and penalties from the IRS.

When preparing the report, you can take allowable deductions to decrease your taxable income. You might be unaware of this, but even a loss can actually help you, as a business loss can be deducted from your total income on your tax return. Hence, to make sure you take full advantage of business tax benefits, it would be a good idea to hire a tax advisory to walk you through the whole process.

So, Where Do I Start?

Start with determining your net business income. To do that you will need to put together an income statement. This income statement is often known as the “Profit and Loss Statement” or a “P & L”. This statement is prepared before you prepare your business tax return and lists all sources of business income. Then to calculate your net income, show all the expenses. The expenses are important as subtracting the expenses from the income will give you your net income.

You can then include barter income and cost of goods sold on your business tax return. The cost of goods should only be on the tax return of a company that makes or sells products. This calculation is used to show the change in the value of goods over time.

What Are the Business Expenses that Are Deductible and How to Identify Them?

Not all expenses are deductible. But this is mostly because the IRS does not consider them to be legitimate business expenses. Political contributions, membership at a social or sports club, fines and penalties, and commuting costs are all expenses that cannot be deducted.

Excluding the exceptions mentioned in the paragraph above, almost all business expenditures are tax-deductible. The only requirements for deducting expenses include:

  1. The company will have to prove that they are a legitimate business and that they are attempting to make a profit.
  2. Being able to prove that the expenses were necessary for the good running of the business.
  3. Keeping excellent records. If this is not done properly, you will not be able to deduct some of these expenses. Records are the key to deducting business expenses. And the most common error made by business owners is not keeping records for business mileage, for meals and entertainment expenses.

With All the Tax Software on the Market, Shouldn’t Business Tax Return Preparation Be a Breeze?

Well, yes and no. While it is true that tax software can considerably simplify the process, you need to bear in mind that not all tax software is appropriate for your specific needs. While there is tax software that is centered around personal tax returns, others include Schedule C and are designed for sole proprietorships and single-member LLCs. There even others that versions focused on guiding you through the process of preparing partnership and corporation tax returns.

Essentially, what we are saying is that tax software will only be helpful if you find a version that has the form you want. You will, therefore, have to meticulously check the details for each brand of software and version.

Why Is Hiring A Tax Accountant Worthwhile?

As you may have noticed, filing your taxes requires you have an in-depth knowledge of accounting and the tax system. And as your business grows, the accounting part will get even more complex. If you feel unsure about your ability to file your business tax properly and in a timely manner, it would be a good idea to find a company that can do that for you.

If you outsource to a third-party bookkeeping service , you will shift the following responsibility to their experienced team of bookkeepers:

  1. Properly categorize expenses
  2. Handle payroll duties
  3. Prepare financial statements and reports
  4. Prepare tax documents and forms Streamline accounting processes to fit your business structure

Hence, leaving you more time to focus on your business.