Get Ahead of the Game: Why Early Tax Planning is Key for Businesses
Ifedayo Akinkunmi
It’s July 2024, and you most likely submitted your 2023 tax return to Federal Inland Revenue Service (FIRS) via the tax ProMax. For most people, taxes are the last thing they want to think about once they’ve finally submitted their returns. In actuality, though, anticipating and preparing for tax season in advance can have a significant impact on your financial situation. However, the majority of business owners are actually too preoccupied with running their companies on a daily basis (which is understandable) to really think about their taxes for the following year.
Unlike what many people think, tax preparation may benefit anyone and can result in significant tax savings even if you are not a multimillionaire or a Fortune 500 firm. A considerable tax payment decrease may result from careful preparation, depending on your specific situation. This would free up more cash for your business’s expansion.
What is tax planning?
Tax planning is much more than coming up with an estimate of your end-of-year tax liability and how much you should leave aside to pay your taxes. At a high level, it’s taking a look at the entirety of your financial situation and ensuring that all facets work cohesively to ensure you pay the least amount of taxes possible come tax time.
The planning process takes into account numerous considerations, including the size and timing of purchases, expense planning, deduction and credit opportunities and more. This process will also help you select the optimal investment and retirement plans that complement your overall financial strategy and filing status. Below are three benefits (out of many) of tax planning:
1. Save time and reduce errors.
Having an effective tax strategy in place from day one saves you a ton of time throughout the year, and even more so when tax season rolls around. One of the most common issues faced by small business owners is that they are too busy running day-to-day operations to truly devote focus to long-term financial strategies.
Whether it’s time spent debating about making a purchase or rapidly organizing your finances before tax season and trying to figure out what you owe, having a plan in place saves you time. In addition to the time saved in regards to preparation, you will also save significant time when it comes to unnecessary errors when filing.
Some common mistakes I have seen businesses make are:
•Purposely spending more than they normally would in order to increase potential deductions.
•Making large purchases at the “wrong time.”
•And not understanding your tax.
With a solidified tax strategy, you can know what you owe, well in advance of tax time. Ensuring that you don’t make errors in your deductions and filings significantly reduces your chances of being audited.
2. Reduce your overall tax liability.
Ultimately, the goal of tax planning is to reduce your overall tax liability. This means that you will genuinely pay what you owe and not a penny more. Regardless of your personal views on taxation, every business owner can agree that being able to allocate more of their hard-earned money to further growing their business is a positive thing.
Most business owners are shocked when they learn about all of the tax deductions, credits and other provisions available to them that they never knew existed. Tax planning helps you take advantage of every opportunity available to you, from day one.
In addition, the fact that you took the time to formulate a plan and get informed ensures that you remain compliant with tax laws and regulations, avoiding expensive fees and consequences for noncompliance.
3. Enable future growth.
Having a solid foundational tax strategy sets the stage to make better-informed business decisions in the long term. You will be better equipped to make financial projections, strategic business investments and more. Additionally, tax planning will help you understand how changes in your business operations and strategy impact your tax obligations.
Unarguably, the number one reason to start tax planning is that the money you save would have otherwise gone to taxes. This excess capital can now be deployed into marketing, upgrading your systems, hiring more employees, making purchases and ultimately expanding your business.
Should I have a tax plan?
In the ever-changing political climate that we currently live in, it’s now more important than ever to have a plan. With a change in administrations comes a change in tax laws, and many business owners may find that they owe more taxes this upcoming year than in years prior.
A tax plan is one facet of an overall sound financial strategy, albeit a critical one. Unfortunately, however, the majority of people overlook this important aspect, and in turn, end up overpaying significantly at the end of the year. Whether you’re just starting your business or a seasoned veteran, it’s never too late or too early to build a plan.
Whether you’re going to create a plan on your own or partner with a professional, you must give this thought and start taking action. Getting your plan in place is step one in getting ahead of the competition, allocating more money towards business growth and ultimately reducing your overall tax liability.
Ifedayo Akinkunmi ACA, MBA is a tax specialist and he wrote from Lagos.
https://www.linkedin.com/in/ifedayo-akinkunmi-aca-mba-b81360183/
