26 Oct The Importance of Tax Planning for Your Small Business by Mike Jesowshek
What do you think about when you hear the word “taxes”? Talking to business owners daily, we found that when most hear “tax” they think about preparing and filing their return and making payments to government agencies at year-end.
Now, do not get me wrong, that is important and required by law. However, my mission has been to get business owners to go deeper and think about things they can do throughout the year to make sure they are paying the least amount in taxes as legally possible.
This is how the Small Business Tax Savings Podcast was born. We have weekly episodes sharing accounting and tax tips. Through our Free Facebook Group we understand that business owners have so much confusion in this area of their business and that is why we are changing that!
What is Tax Planning?
Simply put it is understanding the tax code the way it was written and utilizing it to your advantage to minimize your tax liability. There is nothing wrong with a strategy to legally avoid taxes by simply following the law, the way it was written.
With that being said, it is important to never cross the line. Ensure that you are doing things legally and have great records and receipts to back up the items you are deducting. Be sure to lean on your accountant in this area to ensure that you are dotting you I’s and crossing your T’s.
What Can I Deduct as a Business Expense?
Within the day-to-day life of your small business, you will incur ordinary and necessary expenses that you can deduct when filing your taxes.
What does “ordinary and necessary” mean?
- Ordinary
- Common and accepted in the general industry in which the business owner is working.
- Necessary
- Appropriate and required or helpful in operating your small business.
Basically an ordinary and necessary expense means that it is appropriate and helpful for your business. To meet this test the expense does not have to happen often or be a recurring expense (although it can be).
We just recently launched our e-book, The Ultimate List of Business Deductions which is a great download for you to begin getting ideas from. If you have not downloaded it yet, do it now!
How Do I Maximize Business Deductions?
You lose every time you spend AFTER tax dollars that could have been PRE tax dollars.
- After Tax Dollars – Money you spend have it has been taxed.
- Think of a W2 employee who buys a desk for their home office using personal funds. They get no deduction for that.
- Think of a W2 employee who buys a desk for their home office using personal funds. They get no deduction for that.
- Pre Tax Dollars – Spending done prior to being taxed.
- Take that same example as above but now you have a business owner. They can buy that desk through the business and get a business deduction, prior to those funds being taxed.
Goal: Strategize to find after tax dollars that can be moved to pre tax dollars by having a business purpose.
A Few Notes And Things To Think About
- This is general advice and not every tax deduction may be allowed for your specific business. Be sure to talk with your tax professional before acting to ensure it’d valid in your line of business.
- What is a valid tax deduction for one business may not be the same for another.
- Always have a separate bank account (or credit card) for your business that you are running your business expenses through.
- Keep great record and receipts – Write directly on the receipt the business purpose and background behind the transaction so it is easy to remember in case you need it down the road.
Do not forget to download our e-book, The Ultimate List of Business Deductions which is a great place for you to begin getting ideas from.
How Am I Suppose To Know All Tax Strategies Available to Me?
Fortunately, we love this type of stuff and took our years’ worth of research and implementation to build out a complete training program on tax planning.
Introducing, our Tax Minimization Program where we have developed that provides:
- Library of Tax Strategies and Implementation Guides to Start Using Today
- Unlimited Ask A Pro Questions
- Private Facebook Group
- Monthly Group Training
- Discount on Partner Services
Not only will you get a bunch of in depth training, templates, group coaching but you also have unlimited access to our team for general tax and accounting questions.
How sweet would it be to have an accounting professional by your side for those questions that pop up in this crazy journey of being a business owner?
MIKE JESOWSHEK
Mike Jesowshek is a Certified Public Accountant with both a Bachelor and Masters in Accounting. He is the founder of JETRO and Associates, a cloud based accounting firm. Mike has a strong passion for technology as his firm helps provide digital accounting, bookkeeping, tax and payroll solutions for small business owners.
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