Accounting 10 Companies Can Use Free Cash Flow To Corporate Tax Planning Is Not an Option, It Is a Must

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Corporate Tax Planning Is Not an Option, It Is a Must

Corporate tax planning is essential for any business to meet their obligations to the government, maximize their profits and plan by analyzing past years’ performance. An experienced tax accountant can guide a company through the maze of tax laws, advise on debt-reduction strategies, and help put more money into growth and development.

Taxes are inevitable

It is impossible to avoid paying taxes in business. Whenever a product or service is made or sold, a business must pay taxes on a portion of its profits. Taxes allow the government to provide services and protection to its citizens. However, a company can reduce its taxes and increase its working capital with tax planning. A business can grow and become more profitable with more working capital. The company’s accountant should discuss what types of deductions and write-offs are appropriate for the business at the appropriate time.

Two basic corporate tax planning rules

There are two key rules in tax planning for small businesses. The first thing is that the company should not incur additional expenses to get tax deductions. A smart tax planning method is to wait until the end of the year to purchase major equipment, but a business should only use this strategy if the equipment is necessary. Another rule is that taxes should be deferred as much as possible. Deferring taxes means legally deferring them until the next tax season. This frees up the money used to pay that year’s taxes for interest-free use.

Accounting methods

A company’s accounting practices can influence its taxes and cash flows. There are two main accounting methods, the cash and accrual methods. In the cash method, revenue is recorded when it is actually received. This means that it is recorded when the invoice is issued actually given than it is sent out. Cash method can delay the tax by delaying the billing. The accrual method is more complicated because it recognizes income and debt actually happens than payment is made or received. This is a good way to chart a company’s long-term performance.

Tax planning including inventory control and valuation

Properly controlling inventory costs can positively impact a company’s tax deductions. A tax planning accountant can advise on how and when to purchase inventory to maximize reductions and changes in stock value (valuation). There are two main inventory valuation methods: first-in, first-out (FIFO) and last-in, first-out (LIFO). FIFO is good in times of deflation and in industries like high-tech sectors where the value of the product depreciates a lot. LIFO is good during times of rising costs, as it values ​​inventory in stock below the cost of goods already sold.

Predicting the future by looking at the past

Good tax planning means that the company takes into account the past sales performance of their products and/or services. In addition, the state of the overall economy, cash flow, overhead costs and any corporate changes must be considered. By considering past years in terms of the “big picture,” executives can make predictions for the future. Knowing when an expansion or cutback is needed makes planning easier. A company can push spending, purchases, staff reductions, research and development, and promotions as needed.

A tax-planning accountant can help a company maximize profits, minimize taxes and achieve growth for the future. Discuss your business needs, desires, strengths, weaknesses and objectives with your corporate accountant to develop a tax planning strategy for all these factors.

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