How a Tax Consultation Can Benefit Your Business
As a business owner, it’s important to find a balance between reducing costs and ensuring that you’re not cutting important corners. If a service seems unnecessary, it might seem natural to forego it in the interest of saving on expenses. However, it’s important to consider the benefits of every opportunity, and weigh it against the costs. When it comes to hiring a tax consultant for your business, there are many ways in which a consultation can save your business money and, ultimately, cost less than what it will save you. Keep reading to learn more about how a tax consultation can benefit your business.
Choose the Right Business Designation
There are many different considerations that you should keep in mind when selecting your business’s corporate structure. Not least among these is how it will impact your taxes. If you have many different designations available to you based on your company’s ownership and operations, then you should speak with a tax consultant to determine how these different options will impact your taxes.
For example, registering as a corporation often results in a company’s earnings being taxed twice. This is because the corporation itself is seen as a separate entity, and must pay taxes on all of its profits. Then, when profits are distributed to owners and shareholders, those individuals are also taxed on that income. Other designations, such as a partnership or sole proprietorship, operate as pass-through entities, meaning that all profits and losses are passed directly to those owners, and they are individually responsible for reporting the income or loss on their personal tax returns. Understanding how each business designation differs in terms of taxation can help you to select the most beneficial option for your company’s future.
Keep in mind that it is possible to change your company’s business designation at any time. So, if your company experiences significant growth, for example, a tax expert may recommend changing your designation in order to improve your tax situation. Hence, these consultations are important to receive on a regular basis, and not only when first founding your business.
Maximizing Deductions and Credits
Every dollar counts, especially for small businesses that are often struggling to compete with larger corporations. While you can’t always cut down on your expenses, you can examine your tax situation more carefully to search for additional deductions and credits that will save your company money every year.
Tax deductions are business expenses that can be used to reduce your total taxable income for the year. While not all purchases made for your business are deductible, there are many deductions that business owners overlook. Working with a tax consultant can allow you to find those lesser-known deductions so that your overall tax liability is reduced when you file.
Tax credits are provided by the government based on your business’s eligibility, and can provide a dollar-for-dollar reduction of your taxes. So, rather than reducing how much of your income is taxed, as with deductions, credits are applied to your tax liability directly, reducing it by that dollar amount. There are dozens of different tax credits that many businesses qualify for, and each of them have their own requirements and filing forms. Determining which credits you qualify for, and ensuring you file for them correctly, can be time consuming and difficult. You’re more likely to be successful in this endeavor with the support of a tax consultant.
Making Important Financial Decisions
In regards to those deductions and credits, the timing of your purchases can often make a big difference in your end-of-year tax liability. For example, if your company is just over the cusp of a higher tax bracket, making additional tax-deductible purchases for your business can bring you back below that line and have a significant impact on your tax liability. However, you likely wouldn’t be aware of this until after the year has ended and you’re working on filing your return—and at that point, it would be too late.
Working with a tax consultant before the year ends (or, better yet, throughout the year) can help you to make these important financial decisions and understand how certain choices will positively or negatively impact your tax standing. In the long run, these consultations can make a very big difference in just how much your business pays in taxes every year.
If you’re looking to reduce your company’s tax liability, contact Demian & Company, CPA, today to schedule a consultation with one of our knowledgeable and experienced tax consultants.