Tax planning is a process of looking at various tax options in order to eliminate or reduce taxes. There are countless tax planning strategies available to a small business owner or an individual. However, regardless of how simple or complex a tax strategy is, it will based on or more of the following techniques:
Choose the optimum form of business entity structures – such as LLC, Partnership, Corporation, or S Corporation. There are different tax benefits available under each type of entity structure.
Shift income from a high tax rate taxpayer, such as you, to a lower rate tax payer, such as your child or other family members.
Structure a transaction so that the money you receive is classified as capital gain or tax exempt.
Plan to take advantage of all available deductions and credits, both business and personal.
Accelerate expenses into the current year and postpone receipt of income into the next year. This strategy is based on controlling the timing of the tax liability.
Find the lowest tax jurisdiction for yourself and your business. The goal is to move profits from a high tax country/state to a low or no tax country/state.
All strategies I discussed above are used year-around. Now that you have an overview of how tax planning works. In next post, I will cover how we can use some tax strategies before the year-end.
Keep in mind that everyone’s tax situation is different, and tax rules can be complex. These tax tips have been prepared for informational purposes only and should not be relied on for tax, legal or accounting advice.