Creating a Strategic Tax Plan for Your Business: The Ultimate Guide

Business tax accounts for around 7% of the US Government’s total revenue.

While this number may seem small, this tiny percentage is actually billions of dollars every year. What this actually represents is billions of dollars that could have been reinvested into small businesses and towns around the country. 

This is why it’s so important to take your time and create a strategic tax plan for your business. This tax plan should align with your business goals, allowing you to save on taxes and invest in growing your business and the community around you.

Want to learn more about building the best tax strategy? Read on for the ultimate guide on creating and implementing a strategic tax plan for your business.  

What Is Tax Planning?

Taxes are essential for all businesses to account for during the year. This is an important part of financial planning as you need to ensure you have enough money kept aside for tax season. Taxes are incredibly important and should always be done with care and attention to detail. 

This is because even the smallest of fines can look bad on your company’s record. In this way, it’s important to incorporate tax planning into your financial plans for the year. 

Tax planning is the analysis and preparation of your company finances to reduce your tax liability for the year. While taxes are inevitable for all businesses to pay, there are a few things you can do to radically reduce your liability for the year. These different approaches are known as tax avoidance strategies. 

Tax Avoidance vs. Tax Evasion

It’s important to understand the difference between tax avoidance and tax evasion. Tax evasion is the purposeful evasion of paying taxes. This may include lying on official forms or hiding money away from the government, all of which is completely illegal. 

On the other hand, tax avoidance is completely legal and is the process of decreasing your taxable liability by using the current tax code. The tax code is the set of laws and regulations that highlight how taxes are to be calculated and paid every year. Governments use the tax code to guide businesses and encourage them to spend or invest their funds. 

One of the best examples of this is the solar tax credit for businesses. The government introduced a policy that lets businesses decrease their tax liability for the year if they spend on solar panels. In this way, millions of homes and businesses around the country made the switch to solar. 

While the government did lose tax revenue, the policy successfully encouraged people to invest in green energy solutions. 

What Is a Tax Plan? 

A tax plan is an outlined, documented strategy on how you plan to minimize your tax liability for the year. This tax plan differs from a tax strategy as a single plan can consist of leveraging multiple strategies at the same time. This can help you reap the benefits of multiple strategies for your individual business. 

While there are a few simple strategies you can implement in your business, it’s always a great idea to consult with an accountant or tax strategist before doing anything. This can help ensure that everything you’re doing is allowed and above board. 

In many ways, outsourcing your tax planning to professionals can benefit you. This is because tax professionals have the experience and skills needed to create the perfect strategy for you. These professionals have handled hundreds of businesses in the past and know exactly what to do and when to do it. 

What’s in a Tax Plan?

A tax plan should highlight both the strategies that you want to use along with how you plan on using them. At the end of the day, making less profit equals paying less tax. However, businesses still want to grow their income while keeping taxes low. 

This is why the tax strategy and the implementation plan should be included. This way, you can quickly see what your company is doing and how they plan on doing it.  

The Benefits of a Strategic Tax Plan

A strategic tax plan is essential for all kinds of businesses. This is true for businesses of all sizes as well. In some cases, small businesses can benefit from these services the most as it gives them more capital to expand with. 

If you’re thinking about developing a tax strategy but want to know more, here are a few key benefits to keep in mind. 

1. Reduced Taxes

The first and most obvious benefit of developing a tax strategy for your business is that it can help you reduce your tax liability for the year. This results in direct financial savings for your business, allowing you to do more with your money. 

The extra money can help in a variety of different ways, with a few options helping you make more money in the future. When businesses save money on taxes, they generally invest it back into the business. This effectively increases their income for the following year, allowing them to grow in a more aggressive way. 

Another benefit of reducing your taxes is simply that you can pay yourself more. If you’re a small business employing yourself and a handful of others, more money means you can take more money home. Even if you don’t plan on expanding, you can take this extra money as a bonus.

2. Streamlined Financials

Creating a holistic tax plan can help you budget more accurately from the start of the year. This can help ensure that your financials are streamlined and accurate. Having simple, streamlined financial statements are incredibly valuable to your business as you may need to call on them for investors, stakeholders, or even banks in the future.

Whether you’re trying to secure a loan or a new investor, the benefits of having simple, streamlined financial statements are massive. While some tax strategies are complicated and complex, a tax plan brings all this together in a simple, easy-to-understand way. 

Your financial statements will indicate how much money you’re paying in tax every year. With the right tax strategy, you can minimize your tax liability and show investors how you’re planning to invest in growing your business. This is incredibly impressive and highlights the fact that your business is managing its finances well. 

3. Prepared for Growth

Having a well-designed tax plan allows your business to be prepared for growth. In the business world, many businesses fail to scale up to the demand at that time. This opens the doors for competitors to sweep in and increase their market share. 

Investing in a tax strategy in advance can help you prepare for scaling in the future. This is because your books are already aligned to account for reinvesting into the business. In many ways, the tax code incentivizes businesses to grow. 

This is because most deductibles and tax credits are given to businesses that are spending their money on growth. Whether this is with adding staff or investing in a bigger store, strategic investing can pay off in the long term as you grow.

Kinds of Tax Strategies

When it comes to developing a tax strategy, it’s important to understand your options. Not all businesses operate the same way, so you’re going to need to explore the various options to find the perfect solution for your business. 

Here’s a quick look at the most popular tax strategies you can use for your business. 

1. Understand Deductions

Deductions are the simplest way to reduce your taxable income for the year. These deductions mainly surround operational costs, but there are a few other deductions that you can make throughout the year as well. This can include shifting your phone bill to the business or even writing off things such as bad debt. 

Once you understand what you can and can’t deduct, you can start budgeting more accurately for the year. This is because you can include as many expenses as you can for the business throughout the year. 

Doing this in advance prevents you from dumping expenses at the last minute.

2. Make Investment Purchases

Investment purchases are another great way to lower your tax liability for the year. These purchases are technically expenses but are aimed at growing your business. This can include renovating your office space, upgrading your store, or investing in new software for the business. 

While each of these investments is technically an expense, they can directly impact how much money you make every year. In this way, you can invest in your business while writing off the investment itself. 

3. Invest In Your Staff

When it comes to running a successful business, it’s important to take care of your staff. Investing in your employees helps motivate them to excel in whatever their role is. This helps your business achieve its goals for the year, increasing your income and profit in the process.

There are tons of different ways you can invest in your staff. While the most obvious way would be to increase their pay, there are more innovative methods as well. This can be through running incentives for staff, encouraging them to reach a target to claim a bonus. 

Another way to invest in your staff is to invest in their education. Executive education is incredibly popular and is completely deductible. In this way, you can give your business the skills it needs to grow while writing off the cost in the process. This is similar to investment purchases as you’re investing in the growth of your business. 

4. Employ Family Members

While increasing your payroll can save you on taxes, employing family members is even more effective. Employing your kids will allow them to reap benefits from the business, all of which can be completely written off. 

5. Hire a Tax Planning Company

Working with a tax planning company can make your life incredibly easy. Creating and implementing a tax strategy can get incredibly complex, with the most complex strategies often being the most beneficial. This is why outsourcing the job to professionals can help you streamline the entire process.

Tax planning companies will evaluate your entire business from the ground up. After this analysis, they will then make accurate suggestions about what you can do to reduce your taxes. The benefit of working with them is the fact that they can partner with you as you grow. 

When your business grows, its needs will change and evolve. Having a reliable partner can help make the process easier, sticking with you every step of the way.

6. Contribute Toward Retirement

Contributing to retirement accounts come with a ton of tax benefits for the employer and the employees. The tax code is designed this way to help encourage you to save for the future. Retirement contributions are often tax-deferred, but you can still write the entire cost off your taxable income for the year. 

When investing in retirement, it’s important to do your research beforehand. There are a few different kinds of retirement accounts available, so you should find the best one for your individual financial goals. 

7. Deduct Travel Expenses

Business travel can be deducted completely. While personal travel can’t be deducted, there are ways you can merge your business and personal travel plans together. If you know that you need to travel to a different city for a meeting, consider extending your stay there a few nights.

The extra nights will need to come from your personal funds, but the return travel costs would still be completely covered by the business. If you employ family members, they can come along with you at no personal cost. 

8. Structure Your Business Perfectly

The way your business is structured can determine how much and what kind of taxes you pay. This is an important part of managing your company finances as it can impact how much taxes you pay at the end of the day. 

Consulting with a professional tax planner can help evaluate how your business is set up. They can then make suggestions of how you can structure your operations to make the most of the tax code. In most cases, registering your business as an LLC can have a major impact.

However, this is not always the case. Larger businesses may benefit from a diverse, subsidiary-based corporate structure. This can help break up the income into many small businesses, lowering the effective tax rate across the board. 

While this strategy can be effective, it’s essential that you talk to an experienced tax accountant before making any decisions. 

How to Create a Tax Plan 500

Creating a tax plan for your business is incredibly important. This plan is often kept in mind when crafting the budget for the year, allowing you to take full advantage of the current tax code. Read on for a complete guide on how to create a tax plan for your business. 

Step 1: Review All Income and Expenses

The first step that you should take when creating a tax plan is to consolidate your income and expenses. This is important and can be done whilst drawing up your budget for the year. While incomes will be estimated at first, the plan can always adjust as real-world results come in. 

A tax strategy should always account for these variables. This is why the strategies you use should be based on broad goals for the business and not on fine details. Whether you are $100 off your goal should not have any real-world impact on your chosen strategy.

Once you consolidate all your income and expenses for the year, you can then use this information to choose your desired strategy. This is important as some strategies require you to move money elsewhere and you need to know if you can afford that. 

Having a reviewed, consolidated budget can help make comparing the different strategies easier. 

Step 2: Compare Different Strategies

As mentioned above, the next step is to compare the different tax strategies. These strategies can range from investing in the business to taking more money out of the business for personal use. Each strategy has its benefits and its limitations, so it’s important to take your time when choosing the perfect strategy for you.

Tax can quickly get complicated. In many cases, a complex strategy can actually end up working in your favor. This is why you should consider working with tax professionals to help you out.

Step 3: Consult with Professionals

Tax professionals are qualified, experienced accountants who know the tax code like the back of their hands. The tax code itself is incredibly detailed and complicated, not to mention evolving. In this way, working with a tax professional can ensure that you always have the latest, accurate information to base your decisions on. 

These professionals come with experience that you may not have. Since they offer this service to hundreds of other businesses, they know which ideas work and which don’t work. This enables them to give you accurate, sound advice for your business.

Step 4: Implement Your Chosen Strategy

It’s one thing to design the perfect strategy, but it’s another thing to implement it successfully. Your tax plan should be designed along with your budget for the year. This way, you can outline your company’s finances from start to finish.

This includes outlining your operational goals for the years and how your chosen tax strategy can help support that. This can help prevent you from rushing to push expenses through at the last minute to decrease your tax liability that year. 

Working in advance can help you keep consolidated, accurate, and streamlined financial statements for your business.

Step 5: Evaluate and Evolve

As mentioned earlier, the tax code evolves over time. Since the government uses the tax code to encourage businesses to invest, different policies can arise at any time. This is why you should always evaluate and evolve your tax plan to remain effective for your business. 

If new policies come out or new opportunities arise, it’s important to evolve your tax strategy to take advantage of that.  

Working With Professional Tax Planners

When it comes to developing a tax strategy for your business, there are a few different approaches you can take. As mentioned above, there are strategies that include investing in your employees while there are others that outline how you can invest in the business. 

This is why it’s so beneficial to work with professional tax planners. A professional tax planning company employs qualified, experienced professionals, to help guide your tax strategy. These professionals know the tax code inside and out, allowing them to advise you perfectly.

A professional tax company will also keep up to date with the latest policies and incentives. This way you know that your tax plan is up-to-date and as accurate as possible. 

While it’s true that you can hire an accountant to work for you, the truth is that this can end up costing you more. In this way, working with a tax planning company can save you time and money in the long run. 

Get Expert Help With Your Business Taxes

Creating a strategic tax plan for your business is a great way to optimize your entire business. Implementing a solid tax plan is a vital part of financial planning and is essential to prepare for the future. There are different strategies you can use to help save money and set your entire business up perfectly for success. 

Tax strategies can get complex at times. However, there are experienced professionals ready to help you craft the perfect strategy for you. If you’re interested in working with us to optimize your tax plan, click here to contact us today.