The purpose of a business tax strategy is to maximize income by legally reducing the amount of taxes owed. Because tax laws and government regulations are constantly changing, your tax strategies need to evolve as well. A Certified Public Accountant (CPA) is a tax strategist who helps business owners identify allowances, deductions, and other means of reducing tax liability. The CPA can point out the tax ramifications of business decisions and help executives make wise choices.
CPAs are different from CFOs. While CFOs provide financial strategy for the company as a whole and may have a CPA background, not all CPAs are qualified to be CFOs. To get the best advice and help with tax strategy, you need to sit down with a CPA that specializes in taxes.
Here are some of the questions you may want to ask your CPA:
What Should I Do Differently This Year Compared to Last Year?
The business world has changed dramatically in recent times, due to such factors as pandemic restrictions, lockdowns, natural disasters, new government regulations, and societal adjustments. Because of these changes, you may need to revise your tax strategies this year. Consider sitting down with your CPA to discuss what you can do to reduce your tax liability and take advantage of new opportunities going forward.
What Should I Do to Protect My Company in Case of an Audit?
An IRS audit is something nobody wants to face. But with proper record-keeping, data organization, and planning, it does not have to be a terrifying experience. Your CPA can help you determine the best ways to minimize audit risk and to be prepared for a smooth audit if one occurs.
What Contributions Should My Company Be Making to Reduce Tax Liability?
Charitable giving and other contributions may improve the reputation of your business and involve your employees in worthy causes. They can also provide significant tax deductions. However, there may be limitations on what you can donate, to whom you can donate, and how much you can deduct.
A CPA can help you determine the best strategy for making contributions that not only help others but also improve your company’s bottom line.
Could a Change in My Business Structure Provide Tax Benefits?
As your business grows or changes its focus, the time may come when you want to reassess its structure. This decision should be made with great care, because it will affect many different aspects of your business. Paperwork requirements and accounting methods may change, and even your personal liability may be different. The change may also have a significant impact on your tax liability, especially during the year in which the switch is made. It is important to weigh the tax implications against the long-term benefits of changing business structure. Your CPA can help you determine whether, how, and when to make the change.
How Can I Take Advantage of My Losses?
If COVID-19 or other factors have taken a toll on your business, there may be a way to use that fact to your advantage. Small businesses may be able to find some relief under provisions of the CARES Act. In certain cases, these provisions can even allow you to recover some of the income tax you paid in previous years. It’s not a pleasant thing to lose money, but a net operating loss may reduce your income tax liability for the current year and potentially for future years as well.
Calculating and reporting a net operating loss (NOL) can be complicated. The rules have changedand will probably continue to change under the new administration. Your CPA can help you avoid making costly mistakes.
How Might New Tax Legislation Affect My Business?
While much remains unclear about upcoming tax legislation, the Biden administration is expected to call for an increase in corporate taxes. It is also likely that new pandemic relief measures will be available, as well as new credits for such things as alternative energy. Rate increases and new taxes are likely to be phased in over time.
It is very important for you and your CPA to stay informed about changes in tax policies and their likely effects on your business. Be sure to ask about new potential benefits as you plan your strategy.
How Will My PPP Loan Be Taxed? Will It Be Forgiven?
The CARES Act of 2020instituted the Paycheck Protection Program (PPP), which made loans available to small businesses that were adversely affected by Covid-19. These loans could be used to pay employee salaries and some other expenses. Businesses could even apply for forgiveness of those loans under certain conditions.
Forgiven PPP loans are non-taxable at the federal level, but not necessarily at the state level. As of March 2021,nineteen states still impose some form of taxon forgiven PPP loans, such as disallowing deductions for expenses paid with the loans, or including forgiven loans as taxable income. If you have a PPP loan you should consult your CPA to learn about the tax issues and how to avoid unpleasant surprises at tax time.
How Should I Handle Depreciation?
Taking a depreciation deduction can be a significant benefit for companies looking to reduce their tax liability for the current year. In addition, taking this option may allow you to create or increase a net operating loss that could be carried back for up to five years under provisions of the CARES act.
However, in some cases taking this deduction may not be the best strategy. For instance, if your business expects to have higher tax liability going forward, it may be advantageous to spread the depreciation deductions over several years. There are also limitations and special rules for claiming Section 179 depreciation. Your CPA can help you decide whether and how to take advantage of this tax strategy.
Should I File for an Extension on My Business Tax Return?
Due to the unusual conditions of recent times, there are many new things to consider when filing your business income tax returns. Your choices on this tax return may affect your tax liability for years to come. Since it is not yet known what impact upcoming tax changes will have on your business, it could be advantageous to wait a little while for more information.
By filling out the proper form for your type of business, you can usually extend your company’s filing deadline for six months. Your CPA can help you determine if this is a good move in your specific circumstances.
Am I forgetting any tax deductions?
It’s common for companies to miss deductions that could save on their taxes. The following list shows some typical deductions taken by businesses:
- Salaries and benefits
- Contract labor
- Legal and professional fees
- Business insurance
- Interest payments
- Bank fees
- Telephone and internet expenses
- Advertising and promotion
- Travel expenses
- Business meals
- Business use of personal automobiles
- Moving expenses
When preparing your tax returns, consult with your CPA about which deductions make sense for your business. Ask your CPA if there are deductions you might have missed or that you could still instigate. A good CPA will also know about additional deductions that are less common.
The business landscape has changed. Your tax strategy may need to change along with it. In these unusual times, it is more important than ever to consult with your CPA to ensure that you get every tax benefit available to you. A good CPA and a good tax strategy work hand-in-hand to support business growth and success.
If you have any questions about business financial strategy, we encourage you to reach out and speak with a CFO today.
About the Author
Jill Tavey is an experienced outsourced CFO with over a decade of high-level financial expertise and experience. Her ability to negotiate, make and maintain key relationships, and shape strategic direction has helped propel multiple companies through significant growth.
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