The Importance of Tax Planning for Business Owners

Similar to last year, the individual tax filing deadline has been extended by the federal government. This year, the deadline was pushed back to May 17, 2021, which means that taxpayers have about four weeks to finish their tax returns and send them to the Internal Revenue Service. For an individual, putting off tax planning can lead to major stress and costly late fees. However, failing to prioritize tax planning is an even greater problem for business owners. If you own a business, the importance of proper tax planning cannot be overstated. Taxes are not a once-a-year concern. Tax planning should be a continuous, integrated part of your business.

Every Financial Transaction Has an Effect on Taxes

Almost every financial decision you make as a business owner will involve tax consequences. Some decisions will have a minor impact while others dramatically influence your tax liability – and consequently your bottom line. Tax planning should be an everyday part of your business. By factoring the possible tax implications into each decision you make, you can avoid unpleasant surprises in the future.

Failing to Deduct Expenses Can Add Up

The two main tax-related goals of any smart business owner are to comply with tax laws and minimize tax liability as much as possible. Overlooking business tax deductions is one of the most common mistakes small business owners make. Remember to keep track of opportunities for tax write-offs even if the deductions are small. When added together, small deductions can add up to big savings. Some of the most commonly forgotten business deductions include travel expenses, petty cash, business entertainment expenses, bank fees, and credit card fees.

Tax Penalties for Late Filing and Other Mistakes Hurt Your Bottom Line

Tax penalties are expenses that are entirely preventable through appropriate planning. Waiting until the last minute to file your taxes can result in unexpected problems that delay filing. The penalty for late filing is 5 percent per month. There is also a penalty for late payment of the initial payment. Underpayment will also incur a penalty. If you make mistakes on your tax return that result in an underestimation of your tax liability, you may be subject to a nerve-racking IRS audit. You could also be charged a 20 percent penalty. The harshest penalty imposed by the IRS is the 75 percent tax fraud penalty. Maintaining accurate records and honestly disclosing your income and expenses will prevent your business from being subject to this massive penalty.

Call Us Today for Guidance

Tax planning is something that many business owners neglect. It is only when they run into a problem that the importance of proper tax planning becomes apparent. For help making your business as successful as possible, turn to the skilled Naperville business law attorneys at the Gierach Law Firm. Call 630-756-1160 for a confidential consultation to discuss your business tax planning needs today.

Sources:

The Balance – Small Business

Forbes