Savvy business owners know that certain business strategies can help save money. One example: tax planning. Proper planning can help your business make the most of tax saving options and reduce the business’ tax obligations — leading to a higher profit margin. The following basic steps can help you get started.
#1: Consider business formation carefully
Business formation can help your business meet several goals, including certain tax saving options. A sole proprietorship, partnership, or corporation can all have different tax structures. Those considering a corporation will need to review the impact of double taxation, as the government generally expects payment from the business and the owners separately. In contrast, those who choose a partnership or limited liability company as their business structure generally use a pass-through form of taxation — meaning the tax obligation essentially passes through the business directly to the owner. This results in one wave of taxation instead of two.
Of course, there are benefits that come with the corporate structure that may mean this option makes the most sense. It is important to review all applicable factors before making your decision.
It is also important to note that the Territorial Government of Guam is its own taxing authority. Although many tax laws are similar to those used in the United States, there are differences.
#2: Invest in the future
One way to reduce taxable profits is to put money back into your business. Business owners can often reduce these profits in the eyes of the government by purchasing equipment and other assets for their business during the same tax year.
If this year was more profitable than average, and more profitable than you project for next year, it may be wise to prepay for certain services you plan to use next year. This can include certain insurance polices, business rent, association dues, or professional membership fees.
#3: Write off clients who have yet to pay their bill
Have clients that have not paid? You may be able to write off these unpaid accounts and further reduce the business’ tax burden.
#4: Watch out for changes in the law
The law is ever evolving, and the niche area of tax law is no different. Keep an ear open for any changes to tax law that could impact your business and be prepared to update your plan as needed.
Is there anything else I should know?
The best tax planning strategies are tailored to your specific business needs and goals. Although the above tips can start a conversation, it is best to seek legal counsel to make the most of tax planning strategies while also better ensuring compliance with applicable rules and regulations.