Best Way To Avoid Tax Issues Is To Plan Ahead

Calculating, filing, and paying taxes are all key components to successfully operating a business. Whether you’re running a sole proprietorship or are a partner in an S corporation, tax law can be overwhelming — and the tax implications of one misstep can be severe.

For this reason, many shrewd business professionals invest in tax planning. With the help of an experienced business tax attorney, you can develop a realistic, workable plan to maximize your company’s profits, and minimize its tax burden.

In this regard, the knowledgeable legal team at Coggins Law can prove an invaluable asset to your business strategy. In fact, business tax planning can improve almost all areas of your company’s finances. The following 5 areas provide good examples of this.

Formation

One of the most important initial decisions a business owner can make is whether to file as a sole proprietorship, partnership, limited liability company (LLC), or corporation. This decision will have far-reaching consequences, including in the arena of taxation.

For instance, LLC members are considered to be self-employed, and must therefore pay Social Security/Medicare tax on their share of the company’s profits. In contrast, S corporation shareholder income is not considered self-employment income, and is therefore not subject to self-employment tax. This is just one example of how tax planning can inform the most fundamental of decisions, such as which business formation a company will use.

Operations

Tax planning can also affect business operations on a very basic level. For instance, a business owner may have to decide how many employees he or she will hire for daily operations. Of course, for each employee the employer must pay a certain amount of Social Security/Medicare tax, (as well as workers’ compensation premiums if the business is based out of California). Obviously, the tax implications of hiring new employees must be taken into account in order to maximize profit.

Compensation

Taxes also play a huge role in making decisions about compensation. These decisions may involve items like:

  • Salaries
  • Bonuses
  • Insurance benefits
  • Retirement pay/401k plans
  • Etc.

For example, when employers offer 401k plans to their employees, matching contributions from the company are generally considered tax-deductible — which means that a business can offer this incentive to attract top talent while also catching a tax break in the process. When company leaders fully understand the tax burdens and benefits of implementing a certain compensation policy, then they can make the best possible decision for their business moving forward.

Transactions

Companies must stay compliant with all applicable state and federal laws in order to avoid unnecessary (and sometimes severe) penalties. Compliance encompasses all aspects of a company’s operation, including its transactions with customers, business associates, vendors, and others. For instance, executives should understand the tax implications of purchasing a new asset for the business. They should also ensure that all vendor contracts are compliant with corporate regulations. In these and other areas, the services of a tax planning lawyer are essential.

Capitalization

Finally, tax planning can even inform how the company will seek funding for its operations. Just as one example, crowdfunding is often viewed as a legal “gray area” when it comes to taxation. However, funds raised in the United States, with few exceptions, are generally considered income in the eyes of the federal government. Thus, corporate leaders should never assume that a certain method of funding carries a lower tax burden than another.

The Premier Tax Attorney in Sacramento and Northern California

Trying to handle tax planning for your business without any professional help can be tedious and time-consuming at best. At worst, you could make a serious mistake that leads to major financial consequences for your company.

In contrast, when you have an experienced and knowledgeable tax attorney on your side, the planning process will go much more smoothly, and will be more effective in the long run. At Coggins Law, our team of experts has decades’ worth of experience in the business tax sector. We can help you make informed decisions that will save your business money, and prevent your company from wasting precious resources on unnecessary tax liabilities.

To learn more about how we can help you in your business tax planning, reach out to us today for a free consultation.