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Review Your Accounting Methods
The latest tax reform opened the door to a significant number of businesses to be eligible to use the cash method of accounting instead of the accrual method of accounting, where revenue or expenses are recorded when a transaction occurs versus when payment is received or made.
For instance, If your business averages less than $25 million in gross receipts over three years, you’re likely eligible to convert your tax method from accrual to cash basis. Assessing your method of accounting may provide opportunities to switch and save.
Plan Strategically for Capital Purchases
Review of accelerated depreciation available through Section 179 and bonus depreciation can help you lower your tax bill while meeting business needs.
There are additional means to receive an immediate write-off of smaller purchases by making a simple de minimis election. Investments less than $2,500 each can be expensed straight away.
Interim Planning and Quarterly Estimates
A periodic review of actual and projected income can help you better understand and manage your tax position. Also, To avoid penalties and better manage cash flow, one can start paying quarterly.
Suppose your income is expected to be higher in the current year. In that case, paying only the safe harbor amount at an estimated rate can allow you to keep cash for your organization without facing problems like underpayment penalties. On the contrary, if income is expected to go down, recalculating tax payments to more accurately reflect actual income can lower your tax payments and keep more cash in your pocket.
Tax Credits
A tax credit is a dollar-for-dollar reduction of your tax bill, instead of a deduction in tax, which decreases your taxable income amount on which your tariff is then evaluated.
Entrepreneurial discovery efforts, hiring practices, going green, and other expenses you may already be covering could make you eligible for tax credits. For example, the Employee Retention tax credit made available by recent legislation is one of the most lucrative tax credits in history known to employers.
Identifying and mapping out the requirements to become eligible for these credits can seem overwhelming, but the result can be more than worth the effort.
Succession Planning
Succession planning can be a complex topic to approach, but it’s an efficient one to prioritize. To accept the possibility of any situation in which an immediate transfer of a business would be necessary is highly unwanted.
Many tax professionals and financial advisors start the tax planning process at the beginning of the year; there's never a wrong time to start. So reach out to a financial advisor or tax professional to start proactive tax planning today.
We cannot speak about a proactive tax strategy without mentioning tax planning. This is because whatever tax strategy you implement results from a tax plan that your tax professional presented. Therefore, tax planning analyzes your financial situation or income sources to ensure that all things work together to make you pay the lowest taxes possible.
