As a small business owner, you must dread the word “Tax” and there is no reason you shouldn’t! Let’s all agree nobody wants to do all the hard work just to end up paying ridiculous tax chunks.

According to Bloomberg, nearly half of the Americans overpay tax meaning that they pay more than what they should have paid legally. Well, that is quite a number! The reason is that many individuals and small businesses ignore tax planning either to save time or avoid the costs of hiring a professional. While it may look trivial in the beginning, lack of proper tax planning can deteriorate a business’ retained profits in the long run thus facing difficulties in expansions and other non-current investments.

How Tax Planning Helps Save Money?



Tax planning is crucial and with proper tax planning, you can significantly reduce your tax bill each year. Here’s how the tax planning works:

Gift Exemptions



The Internal Revenue Service (IRS) allows individuals to give up to $15,000 (as per 2022) to someone each year without having to pay any tax on the amount. However, you should file a gift tax return for gifts that are worth more than $15,000 —Be it stocks, Properties, automobiles, etc.

That being said, you can save taxes on gifts by giving away no more than $15,000 to someone in a year. If you are to give someone a property worth $30,000, you should give half of the property in the first year and the second half next year. This way, you will pay zero tax on the gift.

Converting your Business to an S. Corp



You might want to convert your limited liability partnership or company to an S Corporation to save on your taxes. Just like a limited liability company, the S Corp also has pass-through taxation — where the company doesn’t pay tax and the tax liability is wholly transferred to respective owners.

In addition to lower individual tax rates, here’s how the owners of S. Corps can save on tax bills:

The owners can pay themselves a combination of salary and dividends. The salary figure is deducted in the income tax computation to arrive at taxable profit and therefore reduces the tax liability. However, the IRS has clearly stated that the salary must be reasonable.
Converting into an S Corporation also avoids double taxation since merely the owners pay tax.

There are various other tax incentives available to individuals and businesses that can significantly reduce your tax liability. Few other examples include Energy Tax Incentives, Tax Benefits for Education, Child Tax Credit, Federal tax deductions for Charitable Donations, etc.



In a nutshell, tax planning is vital and you can save on various ways to increase your investment instead of paying huge chunks to the IRS. At Citrine Accounting and Taxes, we thoroughly analyze the opportunities in hand and make sure to fully utilize every tax relief available to our client. Our clients work with us on a recurring basis and pay less in taxes than most Americans.

We would love to efficiently plan and file your taxes so that you can focus more on the operational side of your business!

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