5 Tax Planning Tips for Small Businesses

Curtis G. Swarts, CPA
Ty Anderson

Small business owners are faced with a multitude of challenges in these tough economic times.  Now, more than ever, owners must pay special attention to their accounting records to ensure they take advantage of every available deduction.  The following is a list of five basic tax planning tips for small businesses:

Tip 1 – Business Structure

Choosing the correct business structure is critical for operations, liability protection, and tax efficiency.  Special consideration must be given to the type of entity created under state law and then determining the entity classification for federal and state tax purposes. 

Tip 2 – Defer Income and Accelerate Expenses

Typically, a cash basis taxpayer will benefit from deferring income into the following year and accelerating expenses in the current year.  Taxpayers can delay year-end billings where cash flow permits and prepay certain expenses to minimize their taxable income in the current year. 

Tip 3 –Retirement Plan

Retirement plans are an excellent tax planning opportunity for the company while providing a great benefit for you and your employees.  There are a variety of allowable retirement plans to fit your specific needs.  Most plans provide a tax deduction in the current year while deferring the actual contribution into the latter part of the subsequent year.

Tip 4 –Purchase Equipment

Many taxpayers are eligible to take advantage of special bonus depreciation and expensing of capital expenditures.  Businesses that anticipate purchasing equipment in the near term should consider making those purchases in the current year to minimize taxable income.

Tip 5 –Tax Credits

Taxpayers should be aware of the various tax credits available to small businesses.  Tax credits are generally much more advantageous than a deduction in many cases because they provide a dollar for dollar offset against your tax liability.