- BRW Tax & Accounting
What Does It Take To Plan Your Taxes In 2020?
Taxes can have a significant impact when it comes to your business’ financial plans. But if you plan ahead of the time, you can turn your overall financial strategy more tax competent. Unlike other small businesses, do not make the mistake of viewing your annual tax planning as a mere year-round thing. Instead, take careful considerations to reduce your annual tax bill.
Typically, most of the annual tax deductions and credits have to qualify as expenses by the end of December 31. That said, you could usually make an IRA contribution until April 15. Taxes, however, can be quite complex and time-consuming. After all, you pay your taxes through hard-earned income. And as the new decade starts, it is more relevant than ever to lay out a practical tax plan in 2020.
Importance of Tax Planning in 2020
So long as you want financial leverage, tax planning is of utmost vitality. And as a business owner, you need to understand the intricate details of a systemic tax planning procedure that will allow you a financial boost. Here are some of the key points that can help you understand the importance of tax planning in 2020:
Manage Your Tax Liability
With the correct tax planning, you will gain complete control of your tax liability. In fact, you would be surprised just how much you can save once you take tax planning seriously. However, you should be aware of your tax situation so that you could devise suitable tax strategies for possible deductions and rebates.
Prioritize Your Investment
Small business owners often want to opt for a major investment option but eventually cannot because of the tax obligations. And that is why tax planning could become the savior for you. Inform your investment objectives to your trusted accountant and figure out a suitable plan of action.
Keep an Eye on Litigation Claims
Taxation is a realm that revolves around complicated numbers and non-ending legal procedures. And if you are not cautious enough, you may have to face legal repercussions. You should think of tax planning as a defense mechanism against tax-associated litigation claims. The idea is to streamline your current tax situation and align it with standard taxation laws.
It All Comes Down to Tax Awareness
It would be best if you realized the fact that tax planning is all about tax awareness. And so long as you are aware of your tax situation, you will be able to come up with relevant financial adjustments. It is this instantaneous awareness that will allow you to take a sigh of tax relief every year.
Well, now that you know the importance of tax planning, it is time to dive into tax planning strategies you should take into account in 2020:
Short-Term Tax Planning
Your short-term tax planning complements your business’ financial goals. The sooner you outline your results, the quicker you will be able to form expectations, and these expectations will help you make necessary adjustments at the end of the year.
Long-Term Tax Planning
Often, a great tax plan requires more time than you think. With long-term tax planning, you will be able to move your current year tax adjustment to the next year. If your business operational activities have a complex financial structure, the long-term tax planning would be more suitable.
Keep a Thorough Record of Your Taxes
Whether you eventually opt for short or long-term tax planning, it is essential to maintain a detailed account of your tax returns. Besides, if you organize your tax documents thoroughly, there will be fewer chances to face an audit.
Ordinarily, the IRS decides the audit within three years when it comes to your tax returns. Therefore, hold onto your tax records as long as possible. The extensive tax records will also help you file a claim for a specific tax refund or credit.
Change of Accounting Method
Contemporarily, you can qualify for cash-based accounting as per TCJA (Tax Cuts and Jobs Act). You will, however, have to make the first move to file a Form 3115. And if you want to change your reporting method, talk to your accountant about it.
Remember, your selective accounting method can, in fact, increase or decrease your tax payments in the foreseeable future. If your business, for instance, is on the verge of growth, the accrual method is arguably the best accounting option to measure the profitability of your business.
Estate Tax Planning
If you own a high net worth valuable assets or properties, you will have to pay close attention to your tax obligations in 2020. And that is because the adoption of gift planning or modified estate continuously changes.
When it comes to married couples, for instance, the estate tax exemption can reach up to $23.16 million. Therefore, coordinate with your tax accountant to find out more about your asset options so that you will not have to succumb to federal estate taxes.
What about Purposive Tax Planning
If you want to optimize your taxes further, you might want to look into the purposive tax planning method. It is ideal for small businesses and entrepreneurs who want to enjoy the most benefits with the correct allocation of business assets, income, and other activities.
Don’t Overlook Any Tax Deduction or Credit
It is true – there are practically hundreds of tax deductions and credits you can make. However, the best course of action for you would be to understand different laws about the applicability of several deductions and credits.
Change of Business Entity
If you intend to change the structure of your business in 2020, you should consider numerous tax regulations beforehand. And that is because every business structure has separate tax requirements that lead to different calculations.
Wrap Up: Hire an Accountant You Can Trust
For better or worse, your business will continue to change. Nonetheless, you need an accountant by your side that can look over every financial aspect of your business in detail. Apart from reliability, you should seek an accountant who can adapt to new rules and regulations.
If your accountant can adapt to new changes in your business, he or she will become a valuable asset to your business’ success. Usually, an adaptable accountant is aware of the current tax strategies in different circumstances.
No one said tax planning was supposed to be easy. And if it were, so many businesses would not need to stress about their tax problems and tax penalties. You should observe how your accountant offers the solution to different tax issues. And from there, you can evaluate your entire strategic tax planning process.