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  • Michael Henninger

Tax Planning...all the cool kids are doing it...

In our experience, tax planning is one of the most underutilized tools small businesses engage in. This is unfortunate considering it can provide an unbelievable ROI when done properly....but it's not their fault. Tax Planning is something that many accounting firms are not proactive in with their clients because it's is more than just periodically reviewing the income statement to see what the bottom line looks like. Tax Planning is a process that can't be done retroactively with any amount of positive impact. It can be a catalyst that increases cash flow and helps grow a business much faster. It should be a strategic tool that small businesses use 1) to gauge what their tax burden looks like; 2) to make intelligent decisions with regards to cash management, i.e. spending versus preservation; and 3) to ensure they're maximizing all tax credits and deductions available to them and their specific situation.

This last one is huge. There are MANY parts of the tax code designed to allow businesses to lower, defer and, many times, eliminate, their tax liability. Now, you may wonder why these parts of the code exist. It's because the legislation that creates these opportunities is written to promote activities that politicians in congress want us to engage in. For example, the Research and Development tax credit was written to promote expenditures in areas of innovation with the intent of keeping the United States competitax-planning-all-the-cool-kids-are-doing-ittive on the global stage. This particular program has worked so well that it was made permanent in 2015 AND it has allowed the federal government to decrease it's expenditures into R and D (taxpayer funded) as more and more businesses have been incentivized to fund it on their own.

WOTC (the Work Opportunity Tax Credit) is another fantastic planning tool. This is a dollar for dollar tax credit that businesses and non profits can utilize to decrease and many times eliminate their tax burden for simply hiring people, something they do in their normal course of business. Imagine getting a tax credit of up to $9,600 per hire for doing something (hiring) that they were going to do anyway.

These are just two of the dozen or more ways Tax Planning can significantly impact your bottom line, cash position and ability to grow faster and more strategically when compared to just waiting until tax season to see how everything panned out. Tax Planning is not a "task"'s a value adding tool. It can't be done effectively after the fact, it's something your accounting team should be helping you with throughout the year and years.

Hope that helps. If you need help or would like to discuss tax planning and creating a tailored plan for your business or organization, please let us know.

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