As a small business, planning for your business’s future is vital to your company’s growth and survival. A tax strategy that helps you save money, both short-term and long-term, is critical. In addition to helping you implement an effective tax strategy, we can also provide deferred income tax assistance, which can help you reduce your tax liabilities for the short-term. We can give deferred income tax assistance in the following ways:
Depreciation is a common expense reported by businesses every year. When your business invests in an asset, you will typically write parts of it off over time instead of writing off its cost all at once. Generally speaking, most businesses will use straight-line depreciation, which involves spreading the asset’s cost evenly over its lifetime. However, another option is to use the accelerated depreciation method. This method is often used if the company incurs higher depreciation expenses during the earlier years. It can match how the asset is being used more accurately (for instance, you might use the asset extensively in the first year or two, then slowly phase it out with newer assets).
Using the accelerated depreciation method can help off-put the asset’s initial expenses. This method helps defer your tax liabilities since your income will be lower in earlier periods due to the asset’s purchase. Some businesses avoid using accelerated depreciation since it will reduce their net income in the short-term. We can help determine whether accelerated depreciation is a method that will benefit your company based on the assets you’ve invested in, their use, and your estimated income.
A cost segregation study will help you accelerate depreciation for real estate owned by your business by identifying components of recently acquired, built, or renovated buildings that you can reclassify into a shorter depreciation recovery period. By conducting a study of your real estate assets, you can reduce your income tax and potentially reduce your real estate property taxes in the short term.
There are two main types of bookkeeping: cash accounting and accrual accounting. The cash accounting method records income when you’re paid and expenses when you pay them. It’s a more simplified accounting process since you don’t need to record receivables or payables, and it’s easy to track your cash flow. There are some income tax perks as well since you don’t have to pay income taxes on any payments that you haven’t received yet, even if you made the sale. However, this method makes it difficult to obtain a clear overall view of your company’s financial health.
The other method is the accrual method, which, unlike the cash accounting method, is accepted by the GAAP (Generally Accepted Accounting Principles). When using the accrual method, income and expenses are recorded as soon as you send or receive an invoice. This method provides a much better long-term view of your financial health, but it can result in having to pay taxes on payments you haven’t received yet. Our team can work closely with your business to determine which bookkeeping method will suit your needs best and inform you as to which method will be most beneficial to you regarding your tax situation.
When it comes to payroll taxes, most businesses will withhold taxes directly from employee paychecks. Because you are responsible for withholding the proper amount of taxes, we can help accurately calculate withholdings for employees who have chosen to defer their taxes and correctly report any payroll taxes that your employees deferred.
If you paid payroll tax during 2020 and 2021 and experienced disruption due to COVID-19, you may be eligible for a payroll tax credit called ERC (Employee Retention Credit).
Tax diversification is a way for small business owners to save money on taxes over the long term. It’s a strategy in which assets are allocated to several different investment accounts with varying tax rates, some of which are taxable accounts and tax-deferred accounts. Our tax experts work closely with small business owners to take advantage of tax diversification.
When setting up retirement plans for your employees, there are two options that they can take: regular retirement plans and tax-deferred retirement plans. With a standard retirement plan, taxes are withdrawn from contributions to the plan the moment they are made. With a tax-deferred retirement plan, taxes are not withheld until the money is withdrawn from the retirement account. We can assist with setting up retirement plan contributions, calculating contributions, and informing you of tax implications.
Cash flow is vital for any small business, especially those that have just gotten off the ground and are still growing. This makes deferred income tax planning critical to putting your business in the best possible position to succeed. Effective tax strategies can help provide short-term financial flexibility at a time when it’s most needed. Here at J.R. Martin & Associates, our team of professional tax specialists can help you strengthen your company’s tax strategy by applying deferred income tax planning.