Business Planning

Business Deductions And Tax Planning: Two Critical Steps To Save Money

Abdul Aziz Mondal

Business Planning

Published on: Feb 20, 2023 Last Updated on: Jul 03, 2023

As the owner of a company, doing tax planning is an essential part of sound financial management. Locating and making the most of all available company deductions is one of the most important aspects of tax preparation. Your overall tax liability will go down as a result of the reduction of your taxable income brought about by deductions.

Continue reading to find out about some potential tax write-offs and deductions for your business that you may be overlooking, as well as some suggestions on how you might utilize these opportunities to reinvest in your company.

Understanding Businesses Deductions And Tax Planning Steps

For businesses are costs that are directly relevant to the running of a firm. When calculating your taxable income, these expenditures may be subtracted from the money generated by your firm. Expenses that are regular and essential, as well as those that are considered capital, may be deducted from a business’s income.

1. Locating And Making A Claim For Tax Deductions

It is essential to maintain precise records of your company’s costs to properly identify and account for tax deductions. The Internal Revenue Service mandates that all expenditures must have supporting paperwork and receipts. Knowing which deductions you are eligible to claim is also very important since certain costs could not be deductible at all.

2. Utilize The Available Tax Breaks

Utilize The Available Tax Breaks

The qualifying business income (QBI) deduction allows owners of pass-through businesses to take a deduction equal to up to 20% of their share of the firm’s income. However, this deduction is subject to several regulations and limits and does not come without restrictions.

Figuring out who is eligible to claim the QBI deduction and then determining the amount of the deduction itself is not a straightforward operation. However, the deduction may offer a large tax break for owners of small businesses. If you believe you could qualify for this, you should discuss it with your accountant.

3. Investigate Different Ways To Cut Down On AGI

Your adjusted gross income, often known as your AGI, is a primary factor in determining the taxes that you must pay. For instance, if your adjusted gross income (AGI) is less than $200K, or if you are married, your AGI is less than $250K, then you will not have to pay the extra 0.9 percent in Medical taxes. You may reduce your AGI by the below methods or by lowering your salary:

For example, by registering a company in the US we can obtain some benefits.
Making contributions to a retirement plan that postpones paying taxes until later.
Using the itemized deductions method if your total deductions are more than the standard deduction.
Making contributions to a health-related savings account

If you have any reason to believe that you will wish to itemize your deductions, you might think about keeping track of them on a spreadsheet throughout the year.

4. Learn To Leverage Tax Credits

Tax credits are an additional method that businesses may use to reduce the amount of tax liability they are responsible for paying. Tax credits, in contrast to tax breaks, which lower the level of cash that is subject to taxation for a person or corporation, reduce the percentage of tax that is actually owed by the taxpayer. It is in the best interest of businesses to benefit from tax benefits. Consider the following few options:

Credit for work opportunities offered:
Access credit for the disabled:
Tax breaks for health insurance premiums paid by employers with less than 25 employees

5. Delay Or Accelerate The Receipt Of Income

When it comes to their financial records and tax filings, many small firms rely on cash. When using this cash method a business records revenue and costs at the time that the corresponding cash transaction takes place. So, it means records are taken when the cash changes hands. This opens up some intriguing possibilities for tax planning tactics.

You could wish to delay receiving income until the next year if you believe that you will be in a reduced tax band the following year.

6. Purchase Assets At The End Of The Year

In certain tax years, it can be helpful to estimate the amount of taxes your company will owe, and then to acquire assets, both new and already used, to lower those estimated taxes.

7. Pay Student Loans Of Workers

Employers are now permitted to provide financial assistance to their workers in the form of student debt repayment via a clause that was included in the CARES Act 2020. This Act contains a condition that permits companies to claim a tax exemption for repaying employee student loans and eliminates it from employee income, which means that workers do not have to pay required taxes on the money.

8. Work With Independent Contractors

If you engage independent contractors or freelancers for any reason linked to your company (for example, taking images of things for your online shop), you can deduct the cost of their services from your taxable income.

Before independent contractors begin working for you, you should always make it a point to gather their 1099 forms and ensure that you file them correctly.

9. Reconsider The Type Of Business Entity

Your choice of business entity has a big influence on the amount of Taxes You Will Owe. People who are self-employed and must pay self-employment taxes include those who operate their businesses as sole proprietorships, limited partnerships, or certain limited liability companies. If you anticipate that your company will owe a significant amount of money in taxes, one solution to this problem is to restructure your company so that it is treated as a different kind of legal organization.

Last Words: Why Is It Important For Businesses To Plan Their Taxes?

You are required to pay taxes as the owner of a company, but the amount that you owe should never come as a complete shock to you. It is crucial to understand how company taxes operate and to make estimations of the amount you need to pay each quarter or year to guarantee that you have sufficient funds.

Tax planning is something that can help you generate correct tax predictions, make all tax forms and reports on time, and avoid the possible ramifications of not doing so. Planning your taxes properly may help you achieve all of these things.

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Abdul Aziz Mondal

Abdul Aziz Mondol is a professional blogger who is having a colossal interest in writing blogs and other jones of calligraphies. In terms of his professional commitments, he loves to share content related to business, finance, technology, and the gaming niche.

LLC VS Sole Proprietorship: Major Differences That You Need To Know

LLC Vs Sole Proprietorship: What is right for you? - Whether you are starting a new business or an online store, you will need to choose the right legal structure for your business based on your choice and needs. Both LLCs and sole proprietorships are quite common. The business model you choose might have a big impact on how you run your company, especially as seen from the tax, legal, and management perspectives. In this article, you will learn about two major types of business structures - LLC and Sole Proprietorship. We will first discuss each of these business structures individually in brief. Finally, we will share the major differences between the two in regard to structure, function, role of the owner(s), etc. Hence, to learn more about these two types of business structures, read on through to the end of the article. What Is An LLC? According to Investopedia, “A limited liability company (LLC) is a business structure in the U.S. that protects its owners from personal responsibility for its debts or liabilities. Limited liability companies are hybrid entities that combine the characteristics of a corporation with those of a partnership or sole proprietorship.” The LLC is basically a corporate structure where the owners of the organization protect their place from the liabilities of the company. Here, the company is a different entity from that of the owner. In case of debts, liabilities, and lawsuits, the structure of the organization protects the owners by making them limitedly liable. However, what the regulation of the LLC is depends on the state in the US where your business is located. Apart from banks and insurance companies, any individual or entity can be a member of an LLC. Whatever profits LLCs make, they do not pay taxes directly on the profits. The profits and losses of the LLC are passed through to members of the organization, that report on their individual tax returns. Read More: Micro vs Macro Economics: What’s The Difference? What Is A Sole Proprietorship? According to the Forbes Advisor, “A sole proprietorship is an unincorporated business that’s owned by the individual running it. A sole proprietorship is the default choice for anyone who runs a business but hasn’t set up another formal business structure like an LLC. As a sole proprietor, there’s no separation between your personal and business assets and expenses. You are personally responsible for all your business’s debts and obligations.” This is the simplest form of business. It is basically an unincorporated business with only one owner. Apart from that, this business is also the least expensive to form. A business, by default, is a sole proprietorship if an individual operates the business on his own. For example, if you are an individual shopkeeper, freelancer, retailer, or online business owner, you automatically become a sole proprietor of the business. In this case, you will not need to adopt a business structure from the first. Furthermore, if the name of the business is the same as the name of the owner, then the business is typically a sole proprietorship. However, any sole proprietorship can also operate under a trade name or a brand name. The best thing about a sole proprietorship is that the business and the business owner are not legally separate. Hence, if the business incurs debts, the owner of the business is personally responsible for making the payments for the debt. LLC Vs Sole Proprietorship: What Are The Differences? The major difference is rightly noted by Wall Street Mojo - “LLC is a separate legal entity run by its members having limited liability, and it is mandatory for an LLC to get registered, whereas sole proprietorship is a sort of business arm of an individual which is not separate from its owner; hence its liabilities are not limited, and there is no need to register sole proprietor.” The following are the major differences between LLCs and sole proprietorships: Limited Liability CompanySole ProprietorshipThe company has more than one owner.A single owner of the business runs a single unit.The business and the members are separate entities in an LLC structure.The business and the owner are not separate in a sole proprietorship.The members of the business need to register as per state regulations if they want to form an LLC.The owner of a sole proprietorship needs to ensure that the business name is not the same as another business in the state.It costs around $100 to $800 to form an LLC.There are no costs to form a sole proprietorship.The taxation method is single. A single applicable rate is charged to the members.The taxes of the sole proprietorship are charged from the income of the sole owner. The owner’s taxes and the business taxes are the same here.The members of the LLC are liable only as far as their investments and shares in the business.The owner of a sole proprietorship is fully responsible for the entire business. Furthermore, the owner also does not get liability protection.There is little paperwork to be done.There is no paperwork involved. The best option for you, if you are starting out as a business owner, is to go with a sole proprietorship. If you want to grow a bit more, then changing the structure of your business to an LLC will be a better option. Read More: Vertical vs Horizontal Integration: What Are The Key Differences? Final Thoughts LLC vs Sole proprietorship - Hope you have understood the differences between these two types of business structures. If you are starting out as a business owner, consultant, or freelancer, then sole proprietorship is the easiest and simplest option for you. The paperwork that is required is very minimal, and there are no big costs associated. However, if the business grows bigger and you need legal protection for yourself and your personal assets, LLC is the option to go for. In case of bankruptcy or a legal lawsuit against the business, you do not get involved. Furthermore, there is tax flexibility too. What do you think is the better option of the two? Share your opinions with us in the comments section below. Discover More Business Insights Below! What Is Net Operating Income? How To Calculate NOI? Vertical vs Horizontal Integration: What Are The Key Differences? What Is A Holding Company? – Importance, Operation, And Pros & Cons

The Resources You Need To Start Your Business

What do you need before launching your business? If you've been working toward it for a while, you might be wondering whether the simpler question is what don't you need? While the run-up to starting your company might feel increasingly frantic as you get closer to opening your doors, whether they are physical or virtual, if you've done your research, have a solid business plan, and have made sure that you have ample supply of the resources below, you should be ready to go. Details About Resources You Need To Start Your Business 1. Knowledge There's really no limit to the amount of knowledge that can be useful to you as an entrepreneur, but at some point, you do have to set aside the research and take those first scary real-world steps. Think of knowledge acquisition as an ongoing thing. There's a reason that some professions have continuing education requirements. It would be best if you never stopped learning about your industry, about business in general, and about ways you can improve. But what about the necessary elements in order to get started? First, you need to know your industry. Ideally, you've already got some experience in it; if not, then you'll have a much steeper learning curve. You can take courses, read books, look at online talks, and chat with other entrepreneurs to help you learn more. You need to know about basic business concepts and structures. This can help prevent a situation where you take a very circuitous path to solve problems that actually have fairly standard solutions. Knowledge really is power, and being well-informed about your industry and the forces that act on it will put you at the head of the pack. 2. Funding Having enough funding is critical for every new business, but you also need to know the types of funding and how much you need. Don't underestimate. Even a home-based endeavor will have costs such as setting up a website, physical or virtual storage and printing up business cards and similar items. There are a variety of funding sources that may be available to you, including loans, grants, and investors. Keep in mind as well that funding can be a staged process. You may need a certain amount just to get up and running, and after that, you can look for additional money that is accessible with the aid of Philippine debit cards. In fact, some loans and grants are only available to entrepreneurs who are already in business. 3. Location And Equipment When you hear the word resources, physical items may be the first thing that you think of, and you can't start your business without a place to operate from and things to help you do your job. If your enterprise is virtual, you still need to carve out a space online and have someplace to work, even if it's only a corner in your house or bedroom. If you're selling a product, of course, you will also need to have that actual product. Some resources will be specific to the type of business that you're running, but don't assume that because you are small, you don't need to have certain tools. In fact, you probably face the same challenges that larger companies do, albeit on a smaller scale. This can be the case for companies that have a small fleet. You might think that just because you only have a handful of vehicles, your fleet management challenges will be smaller. However, fleet tracking for small businesses is just as important as it is for large ones. A great way to simplify your operations and increase efficiency is with GPS tracking. In general, the process of accumulating the necessary equipment can add up to big costs, so you need to carefully evaluate your needs. However, don't make the mistake of trying to skimp on necessary hardware and software. This may look economical in the short run, but it will catch up with you eventually. Read Also: 6 Tips For Growing Your Small Business And Boosting Your Bottom Line 4. People Human resources usually refer to employees, and this is certainly one important element of success if your company is big enough to employ more people than just you. Find great candidates through personal referrals or working with a recruiter, and make offers that will attract top talent. However, people will be useful to you in other ways as well. Finding a mentor with who you can bounce ideas and who can offer guidance is invaluable. People extend to the support systems in your life as well. You'll need both professional and personal support. Are you involved with any local professional organizations? Are your family and friends on board with what you're doing? These sources of support can provide ideas and encouragement and can help keep you on track when your energy is flagging. Read Also: Top Signs Your Boss Is Threatened By You Effective Ways To Track Your Employees’ Work Is Natural Gas Distribution A Good Career Path?

Matrix Organizational Structure – What Are Its Pros And Cons?

In a matrix organizational structure, the teams within an organization try to bring different roles within the team together. Doing so, unlike a traditional hierarchical structure, they develop a grid-like reporting structure. Basically, the organization combines two or more structures from within. Here, both the traditional hierarchy of management as well as inter-department management is combined. In this article, you will learn in general about a matrix organizational structure and how it works within an organization. In addition to this, we will also discuss the major pros and cons of this organizational structure. Apart from that, we will also discuss the major roles within a matrix organizational structure. Hence, to learn more about such an organizational structure, read through to the end of the article. What Is A Matrix Organizational Structure? The matrix organizational structure basically combines two or more kinds of organizational structure. For example, let’s say you combine project management and functional management. According to Indeed.com, “Additionally, the matrix structure is composed of both a traditional hierarchy of management, where employees are managed by a functional manager, as well as additional project managers who can manage employees across different departments. These two or more managerial systems intersect on a grid or matrix.” In this organizational structure, different management styles are used - where the functional management as well as the divisional management are combined. Here, functional management consists of the traditional hierarchical structure based on the job function and the organization’s department. On the other hand, a divisional manager is the one who presides over the cross-functional team, which consists of representatives of both teams. An organization with a matrix structure has team members reporting to different managers. There might be a hierarchical manager while the team members may also have to report to their project manager. This type of structuring is important for companies trying to create new products without the hassle of realigning their teams. The matrix organizational structure combines the functional and the divisional managers. This helps the work processes to be done faster. According to the Wall Street Mojo website, “In a matrix structure, team members provide information to a project leader and their department head. This management structure might assist businesses in developing new goods and services without reorganizing teams.” The matrix organizational structure was started in the aerospace industry. This was the time when many firms wanted to get into a contract with US Government employees. They needed to create certain charts that show the structure of the project management team. How Does A Matrix Organizational Structure Work? This structure is best understood with the help of an example. According to ChartHop.com, “At the simplest level, an example of an organization using a matrix structure would be one that has set functional teams (e.g. Marketing, Sales, Customer Success) as well as more divisional teams with members from different functional areas that work together on specific initiatives.” A common example of a matric organizational structure is Nike. The company has teams that operate the functional management like merchandising and HR, as well as divisional teams that operate based on location, demographics, and product. Companies and their employees can get a lot of advantages with the matrix structure, especially with the ways that they work within the organization. The teams can share knowledge with each other and can make more informed decisions. Apart from that, the best thing that they will have is better morale within themselves. However, there are problems that you can find inside a matrix organizational structure, too. Some of them include conflict, slowdown of processes, lack of clarity, and more. Here’s how a Matrix organizational structure works – The employees report to two managers simultaneously. A functional manager is responsible for their overall role in the department. Their project manager, on the other hand, is responsible for the overall role in the department. The project manager is also responsible for a specific role or a project. When team members report to two different managers, the organization automatically breaks down its structure in a different style. What Are The Pros Of A Matrix Organizational Structure? There are different pros and cons of using Matrix organizational structure. It offers flexibility, adaptability, and advantages when matching changing customer needs. This type of organizational structure helps maintain work efficiency and matches market conditions and strategic goals. By creating cross-functional teams working on different projects, these companies can use the Matrix organizational structure to their advantage. According to LinkedIn.com, “One of the main advantages of a matrix structure is that it allows for more flexibility and adaptability to changing customer needs, market conditions, and strategic goals. By creating cross-functional teams that work on specific projects or tasks, a matrix structure can leverage the diverse skills, knowledge, and perspectives of employees from different departments, and foster innovation and creativity.” The intricacy of the matrix organizational structure is one of its main characteristics. You can see from the above sections that the employees are answerable to two managers - functional and project managers. This is because the allocation of resources is in such a way that the human resources are utilized at their highest. The following are some of the major pros of a matrix organizational structure: The departments are able to coordinate better, as the structure brings highly competent team members from different departments to one place. One of the major characteristics of a matrix organizational structure is that it combines the operational and project management frameworks. The communication between two or more departments gets better with the implementation of the matrix organizational structure. What Are The Cons Of A Matrix Organizational Structure? Like most management structures, the matrix organizational structure also has its drawbacks. Here are some of the cons of the matrix organizational structure that you will need to be aware of: There is a continuous need for clarification for the managers regarding their positions, and there are ambiguities in some cases. Hence, there is always a need to define the power dynamics between managers. Apart from the managers, the teams also need clarification regarding their roles in the structure. The individual team members should have a good idea of what their role is at the functional level and what their role is at the project level. This helps in reducing miscommunication between the members. In some cases, due to the involvement of different teams and departments, the decision-making processes can get a bit longer. Apart from that, time is taken since decisions regarding processes need to be made through two different managers. Hence, processes such as quality assurance slow down due to the presence of multiple supervisors. Read More: Entrepreneur : Who Coined The Term ‘Entrepreneur’? Tips: Use Matrix Organizational Structure to its Fullest Potential If you are planning to use the Matrix organizational structure, it’s best to start by outlining different roles within the project. Here are several tips to try when utilizing Matrix organization structure in an organization to its fullest potential. Manage Expectations While outlining the responsibilities of different roles within the project, the best approach would be to understand the expectations of each manager. A project manager might be expecting the performance of the overall project. On the other hand, the marketing manager might only be concerned with campaign performance. It’s important to manage the expectations of different managers and work accordingly. Keep People Accountable for Their Work The best way to ensure efficient project delivery; it’s important to make people accountable for their work. Workplaces with systems in place to increase engagement in their work can boost accountability. Companies can have a weekly report template for the employees accountable for different tasks. Communication Between Employees and Managers It’s important to keep communication seamless and transparent between employees and managers. There can be a weekly chart outlining the completion of tasks. In addition, the managers should also provide employees with feedback. Companies can do it in person or through chat and communication apps used in the organization. Inter-Department Relationships Projects requiring co-dependencies from different departments often face operational hurdles. It can happen due to a lack of collaboration and inter-team communication. However, it’s important to deepen interdepartmental relationships to avoid misunderstanding during collaboration. Wrapping Up Hope this article was helpful for you in getting a better idea of what a matrix organizational structure is. This structure is best suited for large organizations or organizations that deal with multiple projects. Due to the multiple needs of the organization, the managers can shuffle teams and bring personnel from different departments to work together. The matrix organizational structure helps in better coordination between departments and ensures a better quality of products and services. Do you have anything to add regarding this type of organizational structure? Share your thoughts and ideas with us in the comments section below. Read More: What Is Social Entrepreneurship? – Steps To Become A Successful Social Entrepreneur What Is a Franchise, And How Does It Work? – Examples, Benefits & More What Is A Venture Capitalist, And What Are Their Functions?

Importance Of Capital Goods – What Role Does It Play In The Industry?

Do you want to know whether the Capital Goods are the future or a threat to future investment? If yes, you have to understand the reality of Capital goods before drawing any conclusion over it. You must know some of the fundamental aspects of Capital goods before understanding their functions and importance in the Industry. Without knowing the basics, you cannot draw any conclusions about it. Without an adequate supply of Capital goods, Industry cannot grow on the right track. Therefore, you must possess the correct amount of capital goods to increase the chances of your business growth. What Are Capital Goods? The physical assets of a company that is used in the process of production by a company are known as Capital goods. The consumers will use all these products and services produced by the company using these goods. Different forms of capital goods are equipment, machinery, tools, and buildings. Most importantly, they are not finished products; instead, they are used to prepare them. Importance Of Capital Goods Capital plays a vital role in the modern productive system. Without the use of Capital, you cannot be able to run your business successfully. Therefore, every essential aspect of your business is dependent on the application of capital goods. Also Check: Canned Packaged Goods: Everything You Need To Know 1. It Is Essential For Production Without capital, the production of goods and services is hard to imagine. However, nature cannot provide you with all the furnished goods and services to human beings. Machinery for farming, mining, forestry, and ashing can make things easier and more effective for your production process. However, if a man has to work with his bare hand for agriculture, then productivity will be low. Even in the primitive age, the application of the tools was there for plowing the agricultural field. In the modern age, the application of sophisticated machines has made people's lives more accessible and has increased the rate of efficiency. 2. Enhances The Productivity With the enhancement of technology and specialization, the application of capital goods has become much more important than before. Therefore, within a limited time, more goods can be produced. It's like machinery has made the life of the people easier today. In addition, extensive use of capital has made the USA one of the strongest economies in the world due to the high productivity rate. Many developed countries of the world today are primarily dependent on Capital Goods. So you have to make your choices in the correct direction while improving your business. 3. Importance For Economic Development In the process of economic development, capital occupies a central role. This is because the core of economic growth is capital accumulation. A country’s economic development is solely responsible for the usage of capital goods. Roads, railways, airports, harbors, and other essential facilities we use today are part of the capital. Economies of the USA, Russia, And China are developed because they have a high amount of capital to build their economy. Without the application of Capital goods, no economy can flourish in the long run. 4. Creates Employment Opportunity One of the vital roles of Capital goods is creating employment opportunities in any country. Therefore, creating employment opportunities in a country increases when you use Capital goods. Therefore, employment generation is the actual cause for which its use is crucial. It creates the employment opportunity in two ways or, better to say, in two stages- Firstly it creates employment opportunities when workers are hired to produce the machinery, which will help construct dams, roads, and railways. Secondly, workers will be required to handle the machinery for producing the finished products using the capital goods. Many factories will crop up in completing the dam projects, and many people will get employment opportunities. Thus, the capital formation can increase the chances of employment generation in a nation. First, however, you have to understand the ways before using capital goods to develop your nation's economy. 5. Helps To Convert Raw Materials Into Finished Products No factories in the world can flourish only with adequate raw material. The sales of an organization will increase when with the help of machinery, a company's raw materials will be converted into finished goods. Only by selling the finished goods, the asset side of the balance sheet shows a better figure for the organization. Therefore, the profitability of an organization is heavily dependent on the use of Capital goods. You have to understand the co-relation between Capital goods and their usage in modern-day business. Then, proper planning with the help of adequate execution can make things simpler for your organization. Also Read: Boxed Packaged Goods: The right Guide To uplift Your Business Functions Of Capital Goods There are several functions of Capital goods that many of us are not aware of in the correct order. Some of them are as follows:- It ensures an adequate supply of raw materials for your business. The supply of appliances and heavy machinery can help you increase your production level. Capital goods provide the means of subsistence to the workers. You can enjoy the provision for transportation like Railways, motor trucks to make the supply of your products and services smoother. Employment creation and employment generation for the workers increase when you use capital goods. Thus, capital goods form a vital part of the economy that you cannot ignore at your end. You have to admit the importance of Capital goods in your life. Developed countries of the world have focussed on Capital formation first to develop their economy. Final Take Away Without applying capital goods, no economy can prosper in the long run. Therefore, developed economies of the world make extensive use of the capital to improve their economy to the next level. You can share your comments and opinions if you feel that my opinion is correct. For example, today, the demand for Capital goods has increased due to increased orders. If your company has a higher capital margin, then the chances of the growth of your organization increase. You have to understand the facts before deciding to invest in Capital goods. More Resources: Should You Buy GMER Stock? Everything You Should Know Should You Buy GS2C Stock? Everything You Should Know Is PHI Stock A Good Buy? Everything You Should Know

Business Deductions And Tax Planning: Two Critical Steps To Save Money

Understanding Businesses Deductions And Tax Planning Steps