Starting and running a small business comes with its own set of challenges, especially when it comes to managing taxes. For many entrepreneurs, understanding how to strategically approach taxes can make a significant difference in the financial health of their organization.
This short blog outlines tips to help entrepreneurs stay on top of their taxes and avoid audits. Read on and learn practical tax strategies that may help your small business thrive.
Know when to delay and accelerate finances
If your business has had a particularly strong year, consider deferring some of your income to the following year. You can do this by delaying the recognition of revenue or by accelerating expenses, such as paying for next year’s expenses in advance.
This strategy can help lower your taxable income for the current year. Meanwhile, if your income is lower this year, try to accelerate income and delay expenses to take advantage of potentially lower tax rates.
Plan for tax changes
Tax laws are constantly evolving, and it’s crucial to stay ahead of potential changes. For example, with the current tax laws set to expire in 2025, it might be wise to plan for these changes now.
If tax rates increase, accelerating income in 2025 could be beneficial. Being proactive and discussing these possibilities with a tax advisor can help you make informed decisions for the future.
Send gifts to loved ones
Your business might be your largest asset, and gifting a portion of it to family members can be a strategic move. With changes to gift and estate tax exemptions on the horizon, it’s a good idea to explore gifting options sooner rather than later.
This could involve transferring non-voting shares to younger family members. This step can help manage your estate’s tax liability while maintaining control over the business.
Tax planning is a critical component of running a successful small business. By understanding and implementing strategic tax decisions, you can optimize your financial position and focus on what truly matters—growing your business.