Tax planning is one of the most essential yet often overlooked aspects of running a business. An effective tax plan can save your company thousands of dollars each year, but a poorly executed one can cost you just as much. To help you avoid costly mistakes, here are five common tax planning mistakes companies should avoid.
1) Not Reviewing Their Tax Situation Regularly
One of the most common mistakes made by companies is failing to review their tax situation regularly. Tax laws are constantly changing, and your company’s tax situation can also change. By reviewing your tax situation at least once a year, you can be sure that you are taking advantage of all the deductions and credits that are entitled to your business.
2) Failing to Plan for Major Purchases
Another mistake made by companies is the failure to plan for major purchases. If you are planning on buying a new piece of equipment or expanding your business, you need to factor the tax implications of these purchases into your decision. Otherwise, you could end up paying more in taxes than you need to. For instance, if you plan on buying a piece of new equipment, you can take advantage of the business tax deduction provision. This deduction allows you to deduct the total purchase price of certain business equipment from your taxes in the year it is purchased.
3) Not Taking Advantage of Tax Credits
Many tax credits are available to businesses, but not all are able to take advantage of them. These credits can save your company a significant amount of money, so it is worth taking the time to research which ones you may be eligible for and which apply to your business.
4) Overpaying Their Taxes
Some companies make the mistake of overpaying their taxes. While it is always better to err on the side of caution, you should only pay as much tax as you legally require. You primarily give the government an interest-free loan if you overpay your taxes.
5) Failing to Keep Good Records
Companies are required to keep good records, often something that is overlooked for some reason or another. Good record-keeping is essential for effective tax planning. Tracking your company’s expenses and income will be difficult without accurate records, making maximizing your deductions and credits challenging. What’s more, it can ultimately lead you to pay more taxes than required.
By avoiding these common mistakes, you can save your company a significant amount of money on its taxes. It can help you boost your bottom line and give you a competitive edge.
Contact MPS Partners today if you have any questions about effective tax planning for your business. We would be happy to help you create a plan to save you money.