Business Tax Preparation
BUSINESS TAX PREPARATION – PLANNING STRATEGIES FOR SMALL BUSINESS OWNERS
Business tax preparation should always include a thorough plan to minimize taxes owed. The plan should evaluate if, when, and how to conduct both business and personal transactions.
It is common for small business owners to only think about their taxes when it is time for their business tax preparation. In the best circumstances, tax planning is a continual process with a monthly review of P&L and a quarterly meeting with your CPA or tax adviser to discuss any provisions, credits and deductions that are legally available to the business.
One distinction should be made. Tax avoidance is perfectly legal, but tax evasion is not. Often, what determines evasion is fraudulent intent of the business owner. The following Red Flags may generate IRS interest and may point to possible fraud.
RED FLAGS
Accounting abnormalities such as failing to keep adequate records or different amounts reported on financial statements vs. returns.
- Not reporting substantial amounts of Income such as a shareholder not reporting dividends or a retailer not reporting some of the daily receipts.
- Income distribution to relatives, such as children, who are in a lower tax bracket.
- False or improper deductions on a return such as large charitable deduction or overstatement of travel expenses without proper documentation to verify.
BUSINESS TAX PREPARATION PLANNING STRATEGIES
Tax strategies can be simple or complex. At their heart, they all seek to accomplish similar objectives such as decreasing the total taxable income, lowering the tax rate, shifting when tax must be paid, and claiming any and all available tax credits.
To form an appropriate plan, you will need to formulate an estimate of both business and personal income for several years. A solid plan for one tax bracket, may not work well in another bracket. Of course there will be uncertainty and inaccuracy in any projections, but the better the estimate, the more effective the plan will be.
The IRS code is complex and constantly changing, but there are opportunities to save money with a proper business tax preparation strategy in place.