7 Tips on Effective Tax Planning for Businesses

Tax season doesn’t have to be stressful. With the right tax planning strategy, you can sail through tax season without breaking a sweat.

Planning your taxes may not be the most glamorous or engaging element of running a business, but it is a very necessary one. Not only will accurate, well-filed taxes keep your national tax authority happy, but you could also find that you’re entitled to more tax breaks and benefits than you would otherwise have realized.

Read on to find out why tax planning for small businesses, growing start-ups or even large international organizations is essential, plus our seven top tips for effective business tax planning.

Why is tax planning important for businesses?

Tax planning can take a considerable weight off any business owner’s mind. By organizing your finances and getting tax season adequately planned out, you can alleviate one of the major stressors of the financial year. This is especially important in this age of hybrid work, as hybrid work can be complex in tax terms!

But tax planning isn’t just about stress management! When you engage in effective tax planning, there are a multitude of benefits for your business.

For example, a well-organized tax system will make sure that you get all of the tax breaks you’re entitled to. 

Planning your taxes can help you to see how your business is evolving. It gives insight into cash flow, profits, revenue, and more. It can even reveal whether or not you need to restructure your business.

All in all, tax planning is a must for any forward-thinking business. But where should you start with a tax planning strategy?

7 tax planning tips for businesses

1. Organize financial records to maintain accuracy

If you’re well organized throughout the year, planning for tax season will be a breeze. 

Keep your financial records in order, and you’ll be able to quickly and easily locate the information you need when tax season comes around. 

Record organization is a skill, and there are plenty of organizational systems and techniques out there to explore. The important thing is that you find something that works both for you and for any auditor who may want to go through your records.

A first step in achieving this can be to use professional tax software. Make sure the system you choose is compliant with the tax authority (or authorities) relevant for your business, and from there it will help digitize returns, order your records and streamline submissions to tax authorities and auditors. 

On top of this, good record management systems can take the hard work out of record organization. In these systems, files cannot be edited once they are archived as records. That way, you don’t have to worry about a document’s accuracy when you retrieve it at tax time. You can search for records based on keywords or tags, and set stringent access permissions.

2. Take advantage of tax deductions or credits you qualify for

Your business will almost certainly be eligible for some tax deductions and/or tax credits. Many tax authorities, such as the IRS or HMRC, use credits and deductions to encourage good financial practice, so if you’re doing things right, you should be able to reduce your tax burden substantially throughout the tax year.

What kind of things qualify as deductions/credits? Here are a few examples:

• Donating to charities or religious organizations
• Marketing and promotional campaigns
• Liability and hardship insurance
• Food. Both networking meals and employee canteen expenses qualify as ‘necessary expenses’ and can thus be deducted
• Travel, especially ‘green’ travel such as cycle-to-work schemes
• Investment in staff growth, such as education and upskilling programs
• Health plans, including dental
• Retirement plan contributions 

However, with a huge variety of tax deductions and credits available, it’s worth investing in advice from a professional tax accountant to help you. 

3. Choose a business structure that will minimize your taxes

The legal structure of your business can have a big impact on the amount of taxes you pay and even on the way that you file and pay those taxes.

There are various legal structures your company can take, in different regions of the world. These include sole proprietorship or sole trader,, a partnership or Limited Liability Partnership, a Limited Company or Limited Liability Company (LLC), a nonprofit, or a cooperative.

All of these types of businesses file taxes differently, and each gets different tax benefits. Businesses may sometimes switch between structures when it makes sense for them to do so.

For example, in the US, sole traders and LLCs don’t have to pay corporate income tax, but the business owner is liable for the business’ net revenue. 

So, when net revenue falls beneath a certain threshold, it makes sense to structure your company as an LLC. But when revenue increases, you might consider  changing structure in order to separate corporate from personal profits.

However, changing your business structure isn’t something you should do on a whim. It’s vital that you consult your lawyers, as well as a good tax advisor and a business advisor, before you start any IRS, HMRC, or CRA paperwork.

4. Manage your business expenses using a tracking system 

Tracking expenses properly is important for getting your taxes right, but it’s not always an easy thing to do. Expense claims often come in at odd times and could suffer various issues, such as lost or insufficient receipts. This means that expense claims and documentation can get ‘lost in the system.’

Rather than scrambling for receipts and combing through databases, a good tracking system will allow you to pull up expense claims and all the details pertaining to them in an instant.

A resource management system like TIMIFY is also helpful for keeping on top of general business expenses, as it clearly shows the schedules of your human resources and monitors in-store footfall. You can then book the right number of staff for each shift to optimize salary expenses.

5. Streamline tax processes with technologies 

The right tools and platforms can automate a lot of the processes we’ve talked about here. We’ve already talked about how solutions such as TIMIFY can track your resources and help you keep on top of time and expenses, but there’s a wealth of other software out there that can be a huge help when planning your taxes.

For example, a good cloud ERP for small businesses combines data from every area of your business, including inventory management, payroll, procurement, and sales. That means you’ll have up-to-date financial information in one place when tax season rolls around. 

Similarly, you can use mobile apps to track things like mileage and health plan usage, which is often very useful when calculating tax deductions and/or credits. Automated tax solutions remove the tedious work and potential for error involved in manual processes such as data entry and classification, and year-end reporting.

Don’t forget to add important tax-related dates to your online calendar and sync this across the team. On top of this, if you need a meeting with your tax advisor, video conferencing technology makes it easier to find a convenient time.

6. Meet all tax deadlines and file your returns accurately

Wherever you’re based and regardless of which tax authorities apply, they all appreciate accuracy and punctuality. You could find yourself incurring penalties for late filing, which may negate any benefits you achieve from pushing your tax filing date back.

Did you know that you can choose to file your taxes early, rather than waiting until the deadline?  This means that you are more likely to receive your tax refund faster, if you’re entitled to one, and will have more time to pay your tax bill, if you find yourself owing some money. 

To find out how to make the timing of your tax returns work for you, be sure to consult a professional. In the meantime, make sure that you are meticulously accurate with your tax returns and that no matter when you decide to file them, you always meet the relevant deadlines.

7. Get professional help from a tax accountant or tax attorney

Taxes are complicated. We’ve mentioned seeking professional help already in this post, but we can’t emphasize this enough. A tax accountant or tax attorney has the expertise and experience to help you  structure your business to your best tax advantage, get your taxes filed properly, and claim everything you’re entitled to.

Generally, while you definitely should consider the cost of any advice, professional tax accountants and attorneys often pay for themselves with the savings they can deliver, so while you definitely should consider the cost of any professional advice, remember that you’re likely to make that payment back and more in savings when tax season comes around.

The right software and the right strategy can make tax planning simple and effective

Tax season is complicated, and it shouldn’t be approached lightly. It’s important to properly plan your taxes so that you get all the benefits you’re entitled to and you’re completely above board.

Planning your taxes doesn’t have to be difficult, though. With the right tech, you can automate the more tedious and time-consuming elements of tax planning. For example, professional accounting software can flag up potential deductions and tax credits you’re entitled to. 

Mobile apps can monitor expentax-relevant activities such as commute mileage. And tools such as TIMIFY can track resources, schedules, and other things that can help you file your returns to your best advantage.

Don’t ever be afraid to ask for professional help when it comes to taxes. Remember, professional tax accountants and attorneys can often save you a lot more in taxes than they charge in fees. So, it’s often worth looking into taking professional advice as part of your tax strategy.