Are you hoping business growth strategies will help your company reach its goals in 2022? If so, you must add tax planning strategies into the mix to reduce your tax burden, increase cash flow and exceed your goals.
We’re going to cover a lot of growth-focused tax planning strategies in this post, but before you dive into this blog, you should review our previous blog post here.
In our previous post, we recommend having your vision, mission, and goals ready to help you better understand how tax strategies can help you in all three of these areas. We also talk about the importance of understanding the intersection between tax planning and business growth.
Business Growth Strategies and Timing Considerations
Before you can focus on your business’ unique growth strategies, you must consider timing. For example, you might find deferring taxes in Alaska may not make sense for you if you’re well above the $222,000 income tax bracket.
However, if you can defer taxes and go from the state’s 9.4% to 7% tax rate, the timing may be right for your business.
Timing considerations may mean reducing taxes by:
- Accelerating expenses
- Deferring income
Multi-year projections and where your tax bracket stands will play a major role in timing. It may be more beneficial to accelerate spending next quarter or defer income, but it’s 100% dependent on your current financials and your future projections.
5 Tax Planning Strategies to Help You Reach Your Goals
1. Accounting Method Change
If your business has gross receipts averaging less than $25 million in the past three years, you may be eligible to switch to a cash-basis accounting method. In fact, this figure rose to $26 million in 2020 due to inflation.
Cash basis accounting may be very beneficial because:
- Cash basis is an easier form of accounting
- Revenue is only documented when cash exchanges hands
For example, let’s assume that you have a net-60 invoice of $100,000 pending payment. You haven’t received the cash yet, but you would need to record this payment using the accrual accounting method.
If you use the cash basis method, the invoice is only counted when the payment is made.
While a cash basis doesn’t tell the whole story behind your business’ health, it can save you significant money on your taxes when you strategically plan the exchange of cash.
2. Capital Purchase Planning
Capital expenditures are a tax deduction, and there are often expenses that people tend to put off. For example, maybe your office is running 10-year old computer systems that need to be replaced, or you need to invest in new software licenses.
You need these items, but you should plan for them strategically.
If you’re facing a massive tax burden next quarter, you can accelerate the depreciation to lower your tax bill. However, the expense amount will play a role in the overall ability to depreciate these values.
For example, you can deduct expenses of $2,500 or less directly, but even $5,000 expenses can be deducted immediately under the right conditions.
Business owners who own their own building can also use cost segregation to find ways to depreciate their building’s value quicker and get cashback today. However, it may or may not make sense to accelerate depreciation depending on your individual circumstances.
This is an important point that we want to reiterate. Spending money for the sake of tax savings, it’s usually a good idea. For example, if you spend $100,000 to save $25,000 in taxes, it may not benefit your business. Make sure that $100,000 expenditure aligns with your goals and is moving you towards them.
3. Quarterly Estimates and Planning
Actual and projected income will help you better understand what your tax burden will look like this year. Paying your quarterly taxes reduces penalties and fees while also helping your business maintain accurate cash flow projections.
Quarterly estimates should be performed by an expert because they can help you:
- Reach the safe harbor amount
- Maintain cash flow
- Reduce underpayment penalties
Often, if you want to reach your business goals, you must have healthy cash flow. Just because the year started out under or overperforming doesn’t mean the rest of the year will play out that way. Accurate quarterly estimates and interim planning reduce money spent on penalties and fees while keeping more cash in your business.
4. Strategic Use of Tax Credits
Do you have any tax credits that you can use? Often, business owners under-utilize their tax credits, wasting their money in the process. Tax planning should consider using any tax credits that may be available.
You may be missing lucrative tax credits for:
- Going green
- Employee retention
A tax planning professional can research potential tax credits that your business can leverage to save money on taxes. Since these credits are a dollar-for-dollar reduction, they can greatly reduce the taxes you pay.
Your state may have tax credits that you can use, but there are also many federal tax credits.
A tax planner can help you obtain and complete the required forms to claim the business credit.
5. Invest in the Right Advisors and Coaches
Smart business owners hire employees to fill positions because they’re either more qualified to do the job than the owner or can take the heavy lifting off the owner. In addition to employees, we recommend that you look beyond your employees and start investing in:
An advisor or coach can provide you with an outside perspective on your business. These entities are experts in their fields, and they’ll work to save you time, money and often offer a huge return on your investment.
In fact, a 2009 global coaching study by the International Coaching Federation found that:
- 68% of individuals make their money back when hiring a coach
- 86% of companies report a return on investment between 7x and 50x
Additionally, you can write off this investment on your taxes.
Saving money on your taxes can allow your business to maintain higher cash flow to meet business demand and make strategic investments. However, there’s no one-size-fits-all approach to tax planning.
At the end of the day, the tips above can help most businesses save money on their taxes and be better positioned to reach their business goals. However, your business is unique, and you need tax planning strategies that align with your business growth goals.Find Out More