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Tax Planning for Small Businesses
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Posted On :
Jul-20-2009
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Article Word Count :
432
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While there are many advantages to running a Small Business, there are inherent pitfalls if it is not run efficiently and effectively. Tax Planning is a key element that needs careful attention.
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While there are many advantages to running a Small Business, there are inherent pitfalls if it is not run efficiently and effectively. Tax Planning is a key element that needs careful attention. This is a year-round process with meticulous details being planned well in advance, so as to maximize profit while minimizing taxes.
Every individual taxpayer and small business owner has complete liberty to choose the method by which a financial transaction is carried out, so that it results in the lowest legally admissible tax liability. To put it in other words, tax avoidance is completely legal, but tax evasion is not.
The basics of small business tax planning should be well understood and they should be supported by a Small Business accounting system that helps to minimize Small Business Taxes.
Small Business Tax planning starts during the entity selection stage, before you even form your business. For example, which business structure you select will determine future tax implications. Whether you setup an S Corporation, setup an LLC, or choose another business structure, business structure is going to be the basis for the amount of tax that you will pay on all future income.
Deductions and write offs admissible for tax purposes should be understood and implemented during Small Business Tax Planning. The objective should be to maximize what you can deduct from the taxable income; and what you can write off, by being aware of what count as deductible expenses. This is very useful in Small Business Tax Planning, because the question asked by small business owners very frequently is “which expenses will be deductible as business expenses?”
The Internal Revenue Code Section 162 gives the answer, which has been tested and has determined many Court decisions – “In general there shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business”.
In this legal explanation, the two words “ordinary” and “necessary” assume great importance. Simply put, any expense incurred by Small Businesses which are “ordinary” and “necessary” to run the given business are absolutely deductible from the gross income.
Some examples of deductible expenses : 1) Auto expenses – personal car used for business purposes and business vehicles; 2) Expenses related to business : advertising; utilities; office supplies and repairs; 3) Business entertaining: 50% of the cost to entertain present and prospective customers.
Taking into consideration all aspects of proper tax planning will usher the Small Business into prosperity.
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Article Source :
http://www.articleseen.com/Article_Tax Planning for Small Businesses _1858.aspx
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Author Resource :
About Author: To know more about tax planning books and small business books, visit 30minutes books!
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Keywords :
Small Business Books, Tax Planning Books, Small Business Tax Planning , Business Books,
Category :
Communications
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VOIP
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