Fall is not often a time for small business owners to think about taxes; however, farmers and truck drivers can get a jump on their taxes and realize savings by planning now.
Many experts often advocate that tax planning in the fall before year-end is a good idea. Decisions and actions taken before the end of the current tax year can reduce your 2015 tax liability and ensure you're receiving all the credits and grants
3 Main Goals of Tax Planning
There are 3 main goals to small business tax planning over the course of the year.
- Reduce the amount of taxable income to be as low as possible.
- Lower the rate at which each dollar they earn is taxed.
- Avoid any missteps when filing.
There are other goals that may be interconnected with these 3, such as taking advantage of whatever credits and deductions are available, but these are certainly 3 of the biggest concerns any business owner could benefit from through tax planning.
Unfortunately, many businesses - like individual consumers - don't often have the time to consider the best possible tax strategies for themselves over the course of a whole year.
"Many small business owners don't even think about their taxes until it's time to meet with their accountants and file," said Paul Dion, a US small business tax specialist.
"It is to the small business owner's benefit to meet at least quarterly to analyze how you can take full advantage of the provisions, credits and deductions that are legally available to you. What better time than summertime when things tend to quiet down a bit for many small businesses."
Reduce Taxable Income
When trying to get all of these concerns into one focused area of planning, the place to start is usually found in reducing taxable income.
If a small business owner can do that successfully, a lot of other concerns will be eased right away, and that makes the rest of the work fall more easily into place.
If taxable income is reduced, the rate at which businesses are taxed will often decrease.
For this reason, owners should be on the lookout for any deductions they can find for which they may be able to qualify.
This isn't always easy, however, when small business owners get into the time crunch that builds pressure in the weeks before the filing deadline, the report said.
That highlights another need for getting as much planning done as far out in advance as possible; owners obviously also have to run their businesses - and this might be a busy time of year for farmers in particular - in addition to planning their tax filings, but the more time they devote to it early, the more time they're going to have later on.
Much like high school or college students who get their work done slowly over time, these owners might find that both they and their companies are better off doing that rather than cramming, so to speak, right ahead of the deadline.
Avoid Common Mistakes When Filing
In addition, small business owners should also try to make sure they're avoiding any missteps they might be making when it comes to filling out and sending in their tax documents.
Here, too, tax planning can be vital, because it will allow them to look over their current tax situation more closely, and also research what others in their field might have done to make sure they don't do anything that runs afoul of the Canada Revenue Agency (CRA).
The more effort that can be put into avoiding even some of the most obscure missteps - in addition to the more common ones - the less likely they're going to be to deal with the headaches that come with additional requests for information and documents from the CRA.
Unfortunately, in some scenarios, businesses might make mistakes so problematic that they end up being audited by the CRA, and that brings with it another potentially large heap of issues.
For this reason, any headaches that can be avoided with some extra tax planning time is going to make this time well spent.
Year-round Tax Planning
In addition to that fact that it's not always easy for small business owners to tear themselves away from the actual work they have to do to keep their operations chugging along smoothly; it's not always easy for those not specializing in taxes to fully understand all aspects of the Income Tax Act and maximize their ability to succeed within it.
For this reason, working with a tax professional is often a very good idea for these entrepreneurs.
Many business owners likely meet with their tax specialists only once per year, usually in that extra-busy time in the final weeks before the filing deadline.
However, most tax experts agree that it's generally advisable to meet throughout the year, because the meetings won't be as intensive as they are in that final run-up they're usually going to be extremely helpful in putting planning in place.
This kind of effort will typically result in business owners knowing a little more about where they stand after each visit and the best ways they can position themselves to reduce their tax liabilities and increase their preparedness in the next few months as well.
All that work could end up paying huge dividends by the end of the year, and allow owners to rest assured they're approaching their tax situations as judiciously as possible.