7 Tax Planning Strategies for Your Small Business

Business Tax Planning

Smart business tax planning can make a big difference for your company. Each of the more than 30 million small businesses in the U.S. probably has a different ideal tax planning strategy . However, there are some generally applicable approaches. Many or even most small businesses could use one or more of these to save on income taxes. If you’re a business owner looking to minimize the impact of taxes, following certain strategies can really pay off.

Do you have business financial planning questions? Speak with a financial advisor today .

1. Manage the Timing of Your Income and Expenses

One basic technique is to accelerate expenses and defer income. Business can slow income by delaying sending invoices from the fourth quarter to the first quarter. To capture expenses, they can make large purchases before year-end rather than in a few months.

The benefit is that when income is deferred to next year, taxes on that income aren’t paid until next year. Similarly, an expense taken now can be a deduction against current income instead of future income.

Ideal timing of income and expenses depends on your business’s future outlook. If you expect significantly higher personal income next year, it may save on taxes to get income now, for instance.  Make these decisions with your accountant and tax advisor.

2. Make the Most of Depreciation

Depreciation is an accounting technique that lets businesses record an asset’s loss in value as an expense. This paper expense can help reduce taxable income and, therefore, taxes. Usually depreciation must be spread over years or even decades. However, federal laws allow businesses to depreciate 100% of qualified property (up to $1 million) the year it was acquired. This is true only for property that was put into service after Sep. 27, 2017 and before 2023. For property put into service in 2023 and beyond, the deduction drops to 80% of qualified property.

This first-year bonus depreciation means a business can deduct from income the entire purchase price of some types of property. Business owners need to consult a tax advisor to be sure. But computers, software, equipment, machinery, furniture, vehicles and building improvements may qualify.

3. Use the Qualified Business Income Deduction

The same law as the one above also enables a brand-new strategy that lets some businesses deduct 20% of business income. This is only available to pass-through businesses such as sole proprietorships, single-member LLCs and S corporations.

C corporations, such as Amazon and General Electric, can’t get the qualified business income deduction. They are not flow-through entities for tax purposes. A C corporation can undergo a change to an S corporation by filing IRS Form 2553. However, S corporations have restrictions on the number and type of shareholders, as well as on the type of shares they can issue. These restrictions may limit S corporation growth prospects.

There are also limits to the qualified business income deduction based on income level and business type. For instance, many service companies will not qualify based on business type. So, again, talk to your tax advisor. The qualified business income deduction will likely expire in 2025.

4. Fund Retirement Plans

Business Tax Planning

Retirement plans offer tax savings for businesses just as they do for individuals. If you have no retirement plan , consider setting one up. Owners of corporations can contribute up to 25% of their salary to a tax-deferred plan like a 401(k). Sole proprietors can put up to 20% of earnings into a tax-deferred SEP-IRA account.

To get serious tax savings, consider a defined benefit plan. This is essentially a pension plan. They can let businesses put away far more in tax-deferred contributions than defined contribution plans such as IRAs and 401(k)s . The catch is that defined benefit plans are as complicated as IRAs are easy. Expert assistance is essential to set one up. And they aren’t right for all businesses.

5. Offer Employee Benefits

Employee benefits such as company-sponsored health insurance can help attract and retain talent. They can also give your business a deduction to reduce taxable income. And unlike wage hikes, adding or improving employee benefits doesn’t increase employment tax costs.

Health insurance isn’t the only option. Company contributions to benefits such as life, disability and long-term care insurance can also reduce taxable income. So can tuition assistance, childcare assistance, transportation benefits and company cafeterias.

6. Leverage Health Savings Accounts

If your health insurance plan has a high deductible, you may be able to fund a health savings account (HSA) . This is one of the most tax-advantaged ways to save. Contributions to HSAs can be deducted from current income. The contributions to the account grow tax-free. And withdrawals for qualified health expenses are also tax-free.

7. Consider Relocation

Business Tax Planning

Some jurisdictions have significantly lower business taxes than others. Relocating to a state or city with lower taxes can reduce the business’s tax burden.

For instance, Wyoming and South Dakota have no individual or corporate income tax . Alaska has no state sales tax or individual income tax. Montana, New Hampshire and Oregon have no sales tax. Other states that have a business-friendly tax regime are Tennessee, Texas, Nevada and Washington.

Bottom Line

These are just a few of the more widely useful business tax planning strategies. Businesses may also be able to save on taxes by employing family members or setting up a home office. Changing your tax filing status from C corporation to S corporation can avoid double taxation. That can also possibly open the way to a qualified business income deduction.

Small Business Tips

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Tax planning is the analysis and arrangement of a person's financial situation in order to maximize tax breaks and minimize tax liabilities in a legal and efficient manner.

Tax rules can be complicated, but taking some time to know and use them for your benefit can change how much you end up paying (or getting back) when you file . Here are some key tax planning and tax strategy concepts to understand before you make your next money move.

1. Tax planning starts with understanding your tax bracket

You can’t really plan for the future if you don’t know where you are today. So the first tax planning tip is to get a grip on what federal tax bracket you’re in.

The United States has a progressive tax system. That means people with higher taxable incomes are subject to higher tax rates, while people with lower taxable incomes are subject to lower tax rates. There are seven federal income tax brackets: 10%, 12%, 22%, 24%, 32%, 35% and 37%.

No matter which bracket you’re in, you probably won’t pay that rate on your entire income. There are two reasons:

You get to subtract tax deductions to determine your taxable income (that’s why your taxable income usually isn’t the same as your salary or total income).

You don’t just multiply your tax bracket by your taxable income. Instead, the government divides your taxable income into chunks and then taxes each chunk at the corresponding rate.

For example, let’s say you’re a single filer with $32,000 in taxable income. That puts you in the 12% tax bracket for the 2022 tax year (taxes filed in 2023). But do you pay 12% on all $32,000? No. Actually, you pay only 10% on the first $10,275; you pay 12% on the rest.

tax planning regarding new business

» MORE: See what tax bracket you’re in

2. The difference between tax deductions and tax credits

Tax deductions and tax credits may be the best part of preparing your tax return. Both reduce your tax bill, but in very different ways. Knowing the difference can create some very effective tax strategies that reduce your tax bill. (Learn more about tax deduction vs tax credits).

Tax deductions are specific expenses you’ve incurred that you can subtract from your taxable income. They reduce how much of your income is subject to taxes.

Tax credits are even better — they give you a dollar-for-dollar reduction in your tax bill. For instance, a tax credit valued at $1,000 lowers your tax bill by $1,000.

» MORE: See a list of 20 common tax breaks

3. Taking the standard deduction vs. itemizing

Deciding whether to itemize or take the standard deduction is a big part of tax planning because the choice can make a huge difference in your tax bill.

What is the standard deduction?

Basically, it’s a flat-dollar, no-questions-asked tax deduction. Taking the standard deduction makes tax prep go a lot faster, which is probably a big reason why many taxpayers do it instead of itemizing.

Congress sets the amount of the standard deduction, and it’s typically adjusted every year for inflation. The standard deduction that you qualify for depends on your filing status , as the table below shows.

What does 'itemize' mean?

Instead of taking the standard deduction, you can itemize your tax return, which means taking all the individual tax deductions that you qualify for, one by one.

Generally, people itemize if their itemized deductions add up to more than the standard deduction. A key part of their tax planning is to track their deductions through the year.

The drawback to itemizing is that it takes longer to do your taxes, and you have to be able to prove you qualified for your deductions.

You use IRS Schedule A to claim your itemized deductions.

Some tax strategies may make itemizing especially attractive. For example, if you own a home, your itemized deductions for mortgage interest and property taxes may easily add up to more than the standard deduction. That could save you money.

You might be able to itemize on your state tax return even if you take the standard deduction on your federal return.

The good news: Tax software or a good tax preparer can help you figure out which deductions you’re eligible for and whether they add up to more than the standard deduction.

4. Keep an eye on popular tax deductions and credits

Hundreds of possible deductions and credits are available, and there are rules about who’s allowed to take them. Here are some big ones (click on the links to learn more).

» MORE: Find the right tax software for your tax situation this year

5. Know what tax records to keep

Keeping tax returns and the documents you used to complete them is critical if you’re ever audited . Typically, the IRS has three years to decide whether to audit your return, so keep your records for at least that long. You also should hang onto tax records for three years if you file a claim for a credit or refund after you filed your original return.

Keep records longer in certain cases — if any of these circumstances apply, the IRS has a longer limit on auditing you:

Six years: If you underreported your income by more than 25%.

Seven years: If you wrote off the loss from a “worthless security.”

Indefinitely: If you committed tax fraud or you didn’t file a tax return.

» MORE: See more about how long to keep your tax records

6. Tax strategies to shelter income or cut your tax bill

Deductions and credits are a great way to cut your tax bill, but there are other tax planning strategies that can help with tax planning. Here are some popular strategies.

Tweak your W-4

A W-4 tells your employer how much tax to withhold from your paycheck. Your employer remits that tax to the IRS on your behalf.

Here's how to use the W-4 for tax planning.

If you got a huge tax bill when you filed and don’t want to relive that pain, you may want to increase your withholding. That could help you owe less (or nothing) next time you file.

If you got a huge refund last year and would rather have that money in your paycheck throughout the year, do the opposite and reduce your withholding.

You probably filled out a W-4 when you started your job, but you can change your W-4 any time. Just download it from the IRS website , fill it out and give it to your human resources or payroll team at work.

» MORE: Learn how FICA and other payroll taxes work

Put money in a 401(k)

Your employer might offer a 401(k) savings and investing plan that gives you a tax break on money you set aside for retirement.

The IRS doesn’t tax what you divert directly from your paycheck into a 401(k). In 2023, you can funnel up to $22,500 per year into an account. If you’re 50 or older, you can contribute up to $30,000.

While these retirement accounts are usually sponsored by employers, self-employed people can open their own 401(k)s .

If your employer matches some or all of your contribution, you’ll get free money to boot.

» MORE: Calculate how much you should put in your 401(k)

Put money in an IRA

Outside of an employer-sponsored plan, there are two major types of individual retirement accounts : Roth IRAs and traditional IRAs.

You have until the tax deadline to fund your IRA for the previous tax year, which gives you extra time to do some tax planning and take advantage of this strategy.

The tax advantage of a traditional IRA is that your contributions may be tax-deductible. How much you can deduct depends on whether you or your spouse is covered by a retirement plan at work and how much you make. You pay taxes when you take distributions in retirement (or if you make withdrawals prior to retirement).

The tax advantage of a Roth IRA is that your withdrawals in retirement are not taxed. You pay the taxes upfront; your contributions are not tax-deductible.

Earnings on your investments grow tax-free in a Roth and tax-deferred in a traditional IRA.

This table illustrates these accounts in action.

» MORE: How to find the right kind of IRA for you

Open a 529 account

These savings accounts, operated by most states and some educational institutions, help people save for college.

You can’t deduct contributions on your federal income taxes, but you might be able to on your state return if you’re putting money into your state’s 529 plan.

There may be gift-tax consequences if your contributions plus any other gifts to a particular beneficiary exceed $17,000 in 2023.

» MORE: Learn more about how 529s work

Fund your flexible spending account (FSA)

If your employer offers a flexible spending account , take advantage of it to lower your tax bill. The IRS lets you funnel tax-free dollars directly from your paycheck into your FSA every year; the limit is $3,050 in 2023.

You’ll have to use the money during the calendar year for medical and dental expenses, but you can also use it for related everyday items such as bandages, pregnancy test kits, breast pumps and acupuncture for yourself and your qualified dependents. You may lose what you don’t use, so take time to calculate your expected medical and dental expenses for the coming year.

Some employers might let you carry over up to $610 to the next year.

Use dependent care flexible spending accounts (DCFSAs)

This FSA with a twist is another handy way to reduce your tax bill — if your employer offers it.

In 2023, the IRS will exclude up to $5,000 of your pay that you have your employer divert to a dependent care FSA account, which means you’ll avoid paying taxes on that money. That can be huge for parents, because before- and after-school care, day care, preschool and day camps usually are allowed uses. Elder care may be included, too.

What’s covered can vary among employers, so check out your plan’s documents.

Maximize health savings accounts (HSAs)

Health savings accounts are tax-exempt accounts you can use to pay medical expenses.

Contributions to HSAs are tax-deductible, and the withdrawals are tax-free, too, so long as you use them for qualified medical expenses.

If you have self-only high-deductible health coverage, you can contribute up to $3,850 in 2023. If you have family high-deductible coverage, you can contribute up to $7,750. If you're 55 or older, you can put an extra $1,000 in your HSA.

Your employer may offer an HSA, but you can also start your own account at a bank or other financial institution.

» MORE: See the tax benefits of FSAs and HSAs

tax planning regarding new business

Small Business Taxes: What to Expect in 2023

Sally  Herigstad

Here’s what small business owners can expect for the 2023 tax year.

As a small business owner, it’s important to stay up to date on tax laws. Several changes to the federal tax code will affect small businesses this tax year. Read this guide to find out the most important things to know about filing taxes next year. 

Tax changes for 2023

The following changes are in effect for the 2023 tax year, which you prepare and file in 2024.

Doing your taxes on your own? See our reviews of the best tax software for small businesses .

Modified credit for pension plan startup costs

The SECURE Act increases the Section 45E credit for all or a portion of employer contributions to small employer pensions for the first five employer tax years, starting in 2023. The credit for employer contributions is capped at $1,000 per employee. The full credit is available to employers with 50 or fewer employees and is phased out completely for employers with more than 100 employees. 

Net operating rules

The rules around how to claim a net operating loss are changing this year. A net operating loss occurs when your deductions exceed your gross income. As a general rule, you can carry the loss forward to offset income in later years. You cannot offset more than 80% of your taxable income. 

However, a net operating loss generated in 2018, 2019 or 2020 that you are carrying forward is not subject to the 80-percent-of-taxable-income limit. For net operating losses generated after 2020, the 80-percent-of-taxable-income limitations again apply. 

Excess business-loss limitation rules

Through a temporary suspension of Tax Cuts and Jobs Act rules in 2019 and 2020, businesses could carry net operating losses back five years or carry them forward indefinitely. However, the suspension has ended. Taxpayers cannot deduct losses of more than $540,000 per year if married filing jointly or $270,000 if single. This applies to all business income and losses, including Schedule C and pass-through-entity income and losses. You can carry forward losses in excess of these amounts to lower your taxable income in future years. 

In addition, W-2 wages can no longer be used to offset the business losses. Spousal income is taxed separately and may result in a tax bill even if the business losses are greater than the spousal income. 

Interest expense limitation rule

The interest expense limitation rule generally limits the amount of deductible interest expense for the year to the total of the following:

This tax rule was temporarily suspended during the pandemic, but it is back in force in 2022 and beyond.

Charitable contributions increased limits expired

The charitable contribution rule that allowed C corporations and individuals to deduct a greater percentage of their income for charitable contributions is no longer in force for the 2023 tax year.

New 1099-K form deferred

According to the American Rescue Plan Act of 2021, beginning in tax year 2022, small business owners and freelancers who receive more than $600 from third-party digital platforms were scheduled to receive Form 1099-K reporting that income. Platforms such as Amazon, Etsy and eBay also were to report this income to the Internal Revenue Service. 

After pushback from taxpayers and businesses, this requirement has been postponed for one year. If it’s applicable to your business, expect to receive a Form 1099-K in 2024 for the 2023 tax year. 

A tax professional can help make sure your business taxes are correctly prepared and filed in accordance with the latest federal, state and local laws.

State and local tax (SALT) cap

Since 2020, filers can deduct only up to $10,000 in state and local property and income taxes. The deduction is the same for single filers and couples filing a joint return. 

Many business owners who operate a pass-through entity in a high-tax state find their deductions limited by SALT rules. Wayne Winegarden, senior fellow and director of the Center for Medical Economics and Innovation at the Pacific Research Institute, said all business owners should be aware of this cap. “I really think in the high-tax states, the SALT cap is going to be meaningful, more for small businesses, just because they’re going to be filing through their personal taxes,” he said.

Tax benefits for pass-throughs and corporations

The tax reform law created a significant deduction for both pass-through and corporate entities. Pass-through businesses are small businesses structured as S corporations, limited liability companies (LLCs), sole proprietorships and partnerships. Pass-throughs make up approximately 95 percent of U.S. businesses. The law now provides a 20 percent deduction for those businesses. The 2022 deduction phases out at taxable income levels between $170,050 and $220,050 (between $340,100 and $440,100 for joint filers), and the 2023 phase-out levels will be adjusted for inflation. This deduction is set to expire at the start of 2027. 

C corporations also got a big tax benefit: The Tax Cuts and Jobs Act lowered the corporate tax rate from 35 percent to 21 percent in a bid to bring major corporations back to the U.S. to employ workers and create wealth.

First-year bonus depreciation

The first-year bonus depreciation deduction was changed to 100 percent through the end of 2022. In other words, businesses that made eligible equipment and property purchases could deduct the full purchase price instead of writing off a portion of it each year. This provided businesses with more money upfront, which lawmakers hoped would be invested back into the business or be used to hire workers.

Starting with the 2023 tax year, the 100 percent bonus depreciation amount is scheduled to be reduced every year. Josh Zimmelman, founder of Westwood Tax & Consulting, said this enables businesses to write off the cost of assets in one shot.

“A company can invest in vehicles, computers and equipment, and claim the entire expense on their … tax return,” Zimmelman said.

Winegarden said the break is an incentive for businesses to spend more. “Anything that gets you closer to complete expensing is going to increase the value of the depreciation, lower the tax burden and reward those capital-intensive firms,” he said.

Some provisions from the 2018 tax reform law may still affect your business today.

Important 2023 deadlines

Take note of the following tax deadlines for 2023:

Top small business tax deductions

This isn’t a comprehensive list of tax deductions available to small businesses (and you need to ensure your business is eligible for these deductions), but it’s a great starting point:

Types of small business taxes

Small business taxes vary based on the structure of the business, but here are the five primary small business taxes:

Small businesses must account for several types of taxes, including income tax, self-employment tax, employment taxes and excise tax. These vary based on your company’s structure, but there are ways to reduce your business’s tax liability .

Things to remember

If you started your business in 2023, remember these key takeaways:

Business travel is 100 percent deductible, but personal travel isn’t deductible at all. So, if you have airline or hotel points, use them for your personal travel and pay cash for your business travel expenses.

Tax planning should be a year-round strategy

It’s important to be proactive about tax planning for your business. Waiting until the last minute makes tax preparation more complicated and limits your money-saving options. Keeping up with current and future tax changes helps keep you in charge so you can maximize all tax benefits and run a profitable business.

Jennifer Dublino contributed to this article. Source interviews were conducted for a previous version of this article. 

tax planning regarding new business

More From Forbes

7 smart year-end tax planning moves for small business owners.

Year end tax planning is an amazing way to increase your small business net profits without having ... [+] to work harder.

While some of you may still need to file your 2021 taxes, the 2023 tax season (filing your 2022 taxes) is just a few months away. New Year's Eve will be here before you know it, and with the stroke of midnight, many tax-saving strategy deadlines will have passed.

The fourth quarter each year is the time for some proactive tax planning to lower the tax liabilities of your small business (hopefully with a high income). For successful business owners, tax planning shouldn't be a once-per-year exercise when filing your taxes. With extensions, you may be able to delay filing your 2022 taxes until late 2023. However, many tax planning moves that can help lower your total taxes owed may need to be made before the end of the current year.

Review Your Estimated Net Income

Has your income jumped substantially? Has soaring inflation sapped the profitability of your business? Changes in your income, either up or down, can significantly change your tax planning for the year. With a higher income, you may want to be more aggressive in looking for tax deductions. On the flip side, when your income drops, you may become eligible for other tax breaks that you haven't considered in the past.

Are You Using the Best Business Entity?

What corporate structure are you using for your business, if any? Are you a sole proprietor, S-Corp, LLC, Partnership or C-Corp? As your business and income grow, the best structure for your business may change.

If you are making $50,000, the time and effort (and cost) of setting up an S-Corp likely isn't worth it. However, the tax planning math often changes as you earn six figures or more. You should review this with your tax professional and tax-planning Certified Financial Planner™ every few years (more often if your business is growing rapidly or if there have been changes to the ownership).

Best Tax Software Of 2022

Best tax software for the self-employed of 2022, income tax calculator: estimate your taxes.

A cash balance pension plan may allow to both save on taxes and retire earlier.

Optimize Your Business Retirement Plan

One of the best ways for small business owners to slash their taxes is to establish and fully fund a retirement plan . This could be anything from a SEP IRA to a Solo 401(k) or a combination of a 401(k) with a Cash Balance Pension Plan. Would you rather write a big check to the IRS or your retirement account? I know which choice I prefer. High-income small businesses can potentially defer income taxes on hundreds of thousands of dollars annually.

Here are a few of the most common retirement plans for high-income-earning small business owners.

SEP IRA - If you are self-employed, you can contribute 20% of your self-employment earnings into a SEP IRA per year. The maximum contribution to a SEP-IRA is $61,000 for 2022. There are no catch-up contributions for SEP IRAs. With no year-end deadline, a SEP IRA can be set up and funded just before filing your taxes for the previous year.

Solo 401(k) - Typically, a Solo 401(k) will allow for the largest pre-tax contributions , which should translate into the largest tax savings. Business employees can contribute up to $20,500 for 2022 plus a $6,500 catch-up contribution if they are at least 50 years old. Additionally, the business can make a profit-sharing contribution, up to 25% of payroll. That means $61,000 (or $67,500 for those over 50) in allowable 401(k) contributions in 2022.

You can also benefit from a Roth Solo 401(k) for the employee portion of your contributions, $20,500 plus a $6,500 catch-up contribution for business owners over 50. If your spouse also works with you in the business, they can be included in the plan, doubling the amount you can contribute and the tax savings.

Defined-Benefit Pension Plan – For business owners looking to save even more on taxes, the Cash Balance Plan (combined with a 401(k)) could allow your business to shelter several hundred thousand dollars in income each year. You may also hear this called a Defined Benefit Pension plan; more likely, your basic financial advisor or CPA won't mention it all (sadly).

Defined benefit pension plans are the most complicated of the small business retirement plans because the plan design is complex and time-consuming. If you are nearing 50 (or older), are already maxing your 401(k) and want to save even more, talk with your tax planning financial planner ASAP. If they aren't able to help you determine if a Cash Balance plan is right for you, talk with someone who can. Many financial advisors are unable or unwilling to do the work to set up a Cash Balance Plan .

Cash Balance Plan contribution limits will depend on the age and income of you and your employees. But they can often run north of $150,000 per business owner annually. (Double this if your spouse also works in the business with you). The tax savings can be huge, especially for those in high-tax states like California and New York.

Are You Eligible for The Home Office Deduction?

These days, small business owners are more likely to work from home full-time. Business owners reading this who work from home may be eligible to take the home office deduction. Here is what you need to know to determine if you qualify and better understand how this often-scary home office deduction works.

This valuable tax break can save hundreds, or even thousands, of dollars in taxes each year. The best part is that you are already incurring these expenses for housing regardless of your business use. Take the time and discuss the home office deduction with your tax preparer to make sure you qualify.

Don't Ignore Your Bookkeeping

I hope the days of filing your taxes from a shoebox of receipts are long behind you. Even when organized, filing your business taxes can be time-consuming and stressful. Please plan to spend a little time throughout the year to stay up to date on your bookkeeping (or hire someone to do it for you).

Claim First-Year Bonus Depreciation

One of the positive changes from the Tax Cuts and Jobs Act (TCJA) is that you can now get a 100% first-year bonus depreciation for qualified used and new property acquired and placed in service during your 2022 business year. To put this more plainly, you may be able to get a tax break for the entire cost of assets purchased in 2022. If you have a big income year, you may consider moving up some planned purchases into 2022.

Planning ahead, these tax benefits begin to phase out after 2022.

Stay Proactive with Your Tax Planning

With proper timing (from proactive tax planning), your income and deductions could become even more valuable. For those who use pass-through entities (Sole Proprietor, S Corp, LLC, or Partnership), your portion of the business profit and deductions are passed through to you and eventually taxed on your own personal tax returns. Taxes are based on your overall household income and filing status.

We are expecting some changes to tax brackets in 2023 and some increases to retirement plan contribution limits.

For the self-employed, minimizing taxation is one of the best ways to increase the net profitability of all your hard work in your business. Be proactive and work with your tax planning Certified Financial Planner™ and CPA to develop a strategy to make proactive tax planning choices that will help you keep more of your hard-earned money. In the case of retirement accounts, would you rather write a check to yourself or the IRS? The choice is yours.

David Rae

Tax planning while setting up of a business with reference to location (2021-2022 A.Y and A.Y 2022-2023)

I hereby want to summarize details regarding Tax Planning while setting up of a business with reference to location related with A.Y 2021-2022 and A.Y 2022-2023.You will get the following deductions if you have established your business unit in the following locations as per the following sections

1. Income from newly established unit in Special Economic Zone. (Section 10AA) 2021-2022

A. Special provisions in respect of newly established Units in Special Economic Zones. 10AA.

While computing the total income of an entrepreneur, as per section 2 of the Special Economic Zones Act, 2005 , from his Unit, who begins to manufacture or produce articles or things or provide any services on or after the 1st day of April, 2006, but before the first day of April, 2021, the following deduction shall be allowed—

a. hundred per cent of profits and gains derived from the export, of such articles or things or from services for a period of five consecutive assessment years and fifty per cent of such profits and gains for further five assessment years and thereafter;

b. For the next five consecutive years ,50% of such profits and Gains or the amount debited to profit and loss account and credited to the ‘special Economic Zone Re-Investment Allowance Reserve Account (to be created and utilized for the purpose of the business of the assesse) whichever is less

B. Where any amount credited to the Special Economic Zone Re-investment Reserve Account has been utilized for any purpose other than those specified purposes, the amount so utilized; or has not been utilized before the expiry of the period specified the amount not so utilized, shall be deemed to be the profits, and shall be charged to tax accordingly

C. This section applies to any undertaking, being the Unit, which fulfils all the following conditions, namely:—

(i) it has begun or begins to manufacture or produce articles or things or provide services during the previous year relevant to the assessment year commencing on or after the 1st day of April, 2006 in any Special Economic Zone;

(ii) It is not formed by the splitting up, or the reconstruction, of a business already in existence:

(iii) It is not formed by the transfer to a new business, of machinery or plant previously used for any purpose.

D. Computation of Profits

Profit derived from export of articles manufactured in a unit in SEZ can be calculated using the following formula:-

Profit of the business of the unit in SEZ ×Export sales of the unit in SEZ/ Total sales of the unit in SEZ

E. Assessment Year 2022-2023

Same provisions applicable to Assessment Year 2021-2022

2. Deduction in respect of profits and gains from undertakings or Enterprise engaged in Infrastructure Development (Sec 80-IA).

Assessment Year 2021-2022

Company can claim the following deductions if it undertakes the following activities

A. Developing or operating or maintaining Infrastructure facility

No Deduction is allowed to the enterprise which starts those operations mentioned in (A) after 01/4/2017

B. Developing or operating or maintaining Industrial Parks and special Economic Zones. The relevant dates are as follows:-

i. Industrial Park—–between 31/3/1997 and 1/4/2011

ii. Special Economic Zones—between 31/3/1997 and 1/4/2006

C. Generation and distribution of power

i. Generation and distribution of power begins after 31/3/1993 but before 1/4/2017

ii. Starts transmission or distribution by laying a network of new transmission or distribution lines after 31/3/1999 but before 1/4/2017

iii. Undertakes substantial renovation and modernization of the existing network of transmission or distribution lines after 31/3/2004 but before 1/4/2017

D. Reconstruction or revival of a power generating plant

Quantum and period of deduction .

100% of such profits for ten consecutive assessment years.

i. The undertaking is not formed by splitting up or reconstruction of existing unit

The undertaking is not formed by transfer of machinery or plant previously used for any Purpose (usage of upto 20% of Previously used plant and machinery is allowed)

ii. Audit of Accounts

Audited by an accountant as defined in the Explanation below sub-section (2) of section 288 before the specified date referred to in section 44 AB and the assesse furnishes by that date the report of such audit in the prescribed form duly signed and verified by such accountant.

iii. Withdrawal of deduction

The government may withdraw the deduction in respect of certain undertakings after making enquiry.

Assessment Year 2022-2023

3. Deduction in respect of profits and gains from undertakings or Enterprise engaged in development of Special Economic Zone (Sec 80-IAB).

Eligible assessee

Developer engaged in the business of developing a SEZ notified on or after 01/4/2005 but before 01/4/2017.

Quantum and period of deduction.

100% of such profits for ten consecutive assessment years

Other provisions related with this section are following:-

i. Audit of Accounts

Audit by CA is necessary and the assesse is to send the audit report along with the return of Income

ii. Withdrawal of deduction

4. Deduction in respect of profits and gains from specified start-up business (Sec 80-IAC).

Eligible Assessee

i. The Assessee is incorporated on or after 01/4/2016 but before 01/4/2021

ii. The total Turnover does not exceed Rs.100 crores in any previous years relevant to the assessment year for which deduction under sub-section (1) is claimed.

Quantum and period of deduction

100% of such profits for three consecutive assessment years out of Ten years beginning from the year in which the eligible start up is incorporated.

General Conditions

i.The undertaking is not formed by an splitting up or reconstruction of existing unit

ii.The undertaking is not formed by transfer of machinery or plant previously used for any purpose(usage of upto 20% of Previously used plant and machinery is allowed)

Computation of income for deduction

Computation of income for distribution should be done as follows-

ii.Audit of Accounts

Audit by CA is necessary and the assesse is to send the audit report along with the return of Income.

iii.Withdrawal of deduction

5. Deduction in respect of profits and gains other than infrastructure Development undertakings (Sec 80-IB).

Where the gross total income of an assesse includes any profits and gains derived from any business referred to in sub-section (3) to (11),(11A) and (11 B) (such business being hereinafter referred to as the eligible business),there shall, in accordance with and subject to the provisions of this section, be allowed,in computing the total income of the assesse, a deduction from such profits and gains of an amount equal to such percentage and for such number of assessment years as specified in this section.

A. The amount of deduction in the case of an industrial undertaking in an industrially backward state specified in the Eighth Schedule shall be hundred percent of the profits and gains derived from such industrial undertaking for five assessment years beginning with the initial assessment year and thereafter twenty five percent (or thirty percent where the assesse is a company) of the profits and gains derived from such industrial undertaking.

B. The amount of deduction in the case of an undertaking located in such industrially backward districts as the Central Government may, having regard to the prescribed guidelines  by notification in the Official Gazette, specify in this behalf as industrially backward category A or an industrially backward district of category B shall be-

i. hundred percent of the profits and gains derived from an industrial undertaking located in a backward district of category A for five assessment years beginning with the initial assessment year and thereafter ,twenty-five percent (or thirty percent where the assesse is a company ) of the profits and gains of an industrial undertaking.

ii. hundred percent of the profits and gains derived from an industrial undertaking located in a backward district of category B for three assessment years beginning with the initial assessment year and thereafter ,twenty-five percent (or thirty percent where the assesse is a company ) of the profits and gains of an industrial undertaking

C. The amount of deduction in the case of any multiplex theatre shall be-

a. fifty percent of the profits and gains derived from the business of building ,owning and operating a multiplex theatre ,for a period of five consecutive years beginning from the initial assessment year in any place :

Provided that nothing contained in this clause shall apply to a multiplex theatre located at a place within the municipal jurisdiction (whether known as a municipality ,municipal  corporation ,notified area committee or a cantonment board or by any other name ) of Chennai, Delhi, Mumbai or Kolkata

D. The amount of deduction to an undertaking shall be hundred percent of the profits for a period of seven consecutive assessment years, including the initial assessment year,if such undertaking fulfils any of the following ,namely-

a. is located in North-Eastern Region and has begun or begins commercial production of mineral oil before the 1 st day of April 1997

EThe amount of deduction in the case of an undertaking deriving profits from the business of operating and maintaining a hospital located anywhere in India ,other than the excluded area ,shall be hundred percent of the profits and gains derived from such business for a period of five consecutive assessment years ,beginning with the initial assessment year.

Deduction in respect of profits and gains from undertakings or Enterprises Special Category States (Sec 80-IC).

Any undertaking which has begun or begins to manufacture or produce any article or thing, specified in the Fourteenth schedule or commences any operation specified in that schedule, or which manufactures or produces any article or thing, specified in the Fourteenth Schedule or commences any operation specified in that Schedule and undertakings substantial expansion during the period beginning-

i. on the 23 rd day of December ,2002 and ending before the 1st day of April 2007 in the state of Sikkim; or

ii. on the 7 th day of January ,2003 and ending before the 1 st day of April 2012 in the state of Himachal Pradesh or the State of Uttaranchal or

iii. on the 24 th day of December ,1997 and ending before the 1 st day of April,2007 ,in any of the North-Eastern States.

a. One hundred percent of such profits and gains for ten assessment years commencing with the initial assessment year in the case of clause i and clause iii above.

b. One hundred percent of such profits and gains for five assessment years commencing with the initial assessment year and thereafter ,twenty five percent (or thirty percent where the assesse is a company ) of the profits and gains in the case of clause ii above.

7. Deduction in respect of profits and gains in respect of certain undertakings in North –Eastern States (Sec 80-IE).

The deduction shall be allowed to an undertaking has begun production during the following period in any of the following North –Eastern States

Period-1/4/2007 to 1/4/2017

North Eastern States means

Arunchal Pradesh

Production Activities  which are eligible for deduction.

i. To manufacture or produce any eligible article or thing

ii. to undertake substantial expansion to manufacture or produce any eligible article or thing

iii. to carry on any eligible business.

Eligible business means

i. hotel not below two star category

ii. adventure and leisure sports

iii. providing medical and health services

iv. cunning old age home

v. bio-technology related ones etc

100% of the profits derived from such business for 10 consecutive assessment years commencing with the initial assessment years.

Same provisions applicable to Assessment Year 2021-2022.

8.Extra Depreciation in notified backward areas

Any assesse setting up a new manufacturing undertaking in the states of Andhra Pradesh, Telangana, Bihar or West Bengal will be eligible for an extra depreciation of 15% of the cost of the new asset.

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tax planning regarding new business

Tax Business Plan Template: Everything You Need to Know

Its a strategy for all aspects of your business. It is a necessity for those looking to start a tax preparation or tax consulting business. 3 min read

A tax business plan template is a strategy for all aspects of your business. It is a necessity for those looking to start a tax preparation or tax consulting business. A tax preparation business assists individuals and small businesses to prepare and file their taxes correctly and accurately. There are several advantages to choosing a tax preparation business:

The first step in determining if a tax business is the right choice for you is to complete research to determine the feasibility. Research is a way to learn important things about the business that will be helpful in your success. This will help you determine if this is the right business for you, and what type of business you should create.

This information gathering will assist you in preparing a tax business plan template. A tax preparation business service plan can include several different parts consisting of a business overview, strategy, marketing, accounting, services, and all aspects of the business. Before you start your business, make sure you consider how to form a solid business plan.

Sample Tax Preparation Service Business Plan

Business overview/products and services/mission statement.

SWOT Analysis/ Market Analysis/Accounting Plan

It is possible to start a successful tax preparation business in just a few days with appropriate research and resources. Training is important, and a degree in an accounting or financial field will put you at an advantage. Make sure to complete state requirements, such as registering your new business.

For more information on tax business plan templates or legal requirements, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.

Hire the top business lawyers and save up to 60% on legal fees

Content Approved by UpCounsel


Business Jargons

A Business Encyclopedia

Tax Planning

Definition : Tax Planning can be understood as the activity undertaken by the assessee to reduce the tax liability by making optimum use of all permissible allowances, deductions, concessions, exemptions, rebates, exclusions and so forth, available under the statute.

Put simply, it is an arrangement of an assessee’s business or financial dealings, in such a way that complete tax benefit can be availed by legitimate means, i.e. making use of all beneficial provisions and relaxations provided in the tax law, so that the incidence of the tax is minimum.

This ensures savings of taxes along with conformity to the legal obligations and requirements. Therefore, it is permitted by law.

Objectives of Tax Planning

Objectives of Tax Planning

Tax Planning follows an honest approach, to achieve maximum benefits of tax laws, by applying the script and moral of law. Therefore the objectives do not in any way contradict the concept of tax laws.

Types of Tax Planning

Types of Tax Planning

Tax planning means intelligently applying tax provisions to manage an individual’s affairs, in order to avail the tax benefits based on the national priorities, in accordance with the interest of general public and government.

Related terms:

Reader Interactions

Anushka Singh says

May 5, 2019 at 11:03 am

This is very helpful for the students of commerce or BBA .

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This is my syllabus is covered i am so happy Thanking you

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November 17, 2019 at 12:22 pm

It covered my whole of the syllabus. Language is so simple and lucid and easy to understand . It helps me in preparing my project on Tax Planning so that’s why I am very happy and thankful to this.

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January 10, 2020 at 10:19 pm

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November 29, 2020 at 1:12 pm

This helps me a lot, after reading this, I can pass the examination in taxation subject. Thank You 🙏

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Is meaningful, gives me clear understanding of tax planning and helpful for my seminar topic

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An official website of the United States Government

Credits & Deductions

Forms & Instructions

More In File

Listed below are links to basic federal tax information for people who are starting a business, as well as information to assist in making basic business decisions. The list should not be construed as all-inclusive. Other steps may be appropriate for your specific type of business.

Information about specific industries can be found on the Industries/Professions webpage .

For information regarding state-level requirements for starting and operating a business, please refer to your state's website .

What New Business Owners Need to Know About Federal Taxes

Related Topics

Publications, need an employer identification number (ein).


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What’s in Biden’s Tax Plan?

The proposal includes provisions to raise the corporate tax rate to 28 percent, make it harder for companies to move profits overseas and beef up the Internal Revenue Service.

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President Biden’s plan seeks to put an end to big companies paying no or negative taxes to the U.S. government.

By Alan Rappeport and Jim Tankersley

WASHINGTON — The Biden administration unveiled a tax plan on Wednesday that would increase the corporate tax rate in the U.S. and limit the ability of American firms to avoid taxes by shifting profits overseas.

Much of the plan is aimed at reversing a deep reduction in corporate taxes under President Donald J. Trump . A 2017 tax bill slashed the corporate rate to 21 percent from 35 percent and enacted a series of other provisions that the Biden administration says have encouraged firms to shift profits to lower-tax jurisdictions, like Ireland.

Some of the provisions in President Biden’s plan can be enacted by the Treasury Department, but many will require the approval of Congress. Already, Republicans have panned the proposals as putting the U.S. at a disadvantage, while some moderate Democrats have indicated they may also want to see some adjustments, particularly to the proposed 28 percent corporate tax rate.

Administration officials estimate the proposals will raise a total of $2.5 trillion in new tax revenue over a 15 year span. Analysts at the University of Pennsylvania’s Penn Wharton Budget Model put the estimate even higher, estimating a 10-year increase of $2.1 trillion, with about half the money coming from the plan’s various changes to the taxation of multinational corporations.

Here’s are some of the main provisions included in the plan and how they’re intended to work.

Raise the corporate tax rate to 28 percent

Taxes levied on corporate profits, as a share of g.d.p..

The plan aims to raise the corporate tax rate to 28 percent from the current rate of 21 percent, a level that would put it more in line with global peers. Right now, the U.S. raises less corporate tax revenue as a share of economic output than almost all other advanced economies, according to the Organization for Economic Cooperation and Development .

The administration sees raising the rate as a way to increase corporate tax receipts, which have plunged to match their lowest levels as a share of the economy since World War II.

Inflation F.A.Q.

What is inflation? Inflation is a loss of purchasing power over time , meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys.

What causes inflation? It can be the result of rising consumer demand. But inflation can also rise and fall based on developments that have little to do with economic conditions, such as limited oil production  and supply chain problems .

Is inflation bad? It depends on the circumstances. Fast price increases spell trouble, but moderate price gains can lead to higher wages  and job growth.

How does inflation affect the poor? Inflation can be especially hard to shoulder for poor households because they spend a bigger chunk of their budgets on necessities  like food, housing and gas.

Can inflation affect the stock market? Rapid inflation typically spells trouble for stocks. Financial assets in general have historically fared badly during inflation booms , while tangible assets like houses have held their value better.

Ensure big firms pay at least 15 percent in taxes

Many large companies pay far less than the current tax rate of 21 percent — and sometimes nothing. Tax code provisions allow firms to reduce their liability through deductions, exemptions, offshoring and other mechanisms.

The Biden plan seeks to put an end to big companies incurring zero federal tax liability and paying no or negative taxes to the U.S. government.

The White House wants to impose a 15 percent minimum tax on what’s known as “book income” — the profits that firms report to investors but that are not used to calculate tax liability. Such income can make a company appear very profitable, rewarding shareholders and company executives, even as the firm pays little or no tax.

“Large corporations that report sky-high profits to shareholders would be required to pay at least a minimum amount of tax on such outsized returns,” the Treasury Department said. The administration would require that companies with annual income of $2 billion or more pay a minimum 15 percent on their book income. It estimated that 45 corporations would have paid such a tax if the proposal had been in place in recent years.

The proposal is narrowed from the version Mr. Biden proposed in the campaign, which would have applied to companies with $100 million or more in book profits per year.

Strengthen the global minimum tax

The plan aims to strengthen a global minimum tax that was imposed on U.S. companies as part of the Trump administration’s 2017 tax package by raising the tax rate and eliminating some exemptions that weakened its impact.

The Treasury Department would double the so-called global intangible low-taxed income (or GILTI) tax to 21 percent, which would narrow the gap between what companies pay on overseas profits and what they pay on earned income in the U.S.

And it would calculate the GILTI tax on a per-country basis, which would have the effect of subjecting more income earned overseas to the tax than under the current system.

Punish U.S. companies that headquarter in low-tax countries

A provision in the plan known as SHIELD (Stopping Harmful Inversions and Ending Low-tax Developments) is an attempt to discourage American companies from moving their headquarters abroad for tax purposes, particularly through the practice known as “inversions,” where companies from different countries merge, creating a new foreign firm.

Under current law, companies with headquarters in Ireland can “strip” some of the profits earned by subsidiaries in the United States and send them back to the Ireland company as payment for things like the use of intellectual property, then deduct those payments from their American income taxes. The SHIELD plan would disallow those deductions for companies based in low-tax countries.

Push for a global agreement to end profit shifting

The Biden administration wants other countries to raise their corporate tax rates, too.

The tax plan emphasizes that the Treasury Department will continue to push for global coordination on an international tax rate that would apply to multinational corporations regardless of where they locate their headquarters. Such a global tax could help prevent the type of “race to the bottom” that has been underway, Treasury Secretary Janet Yellen has said, referring to countries trying to outdo one another by lowering tax rates in order to attract business.

Understand Inflation and How It Affects You

Republican critics of the Biden tax plan have argued that the administration’s focus on a global minimum tax is evidence that it realizes that raising the U.S. corporate tax rate unilaterally would make American businesses less competitive around the world.

Replace fossil fuel tax subsidies with clean-energy incentives

The president’s plan would strip away longstanding subsidies for oil, gas and other fossil fuels and replace them with incentives for clean energy. The provisions are part of Mr. Biden’s efforts to transition the U.S. to “100 percent carbon pollution-free electricity” by 2035.

The plan includes a tax incentive for long-distance transmission lines, would expand incentives for electricity storage projects and would extend other existing clean-energy tax credits.

A Treasury Department report estimated that eliminating subsidies for fossil fuel companies would increase government tax receipts by over $35 billion in the coming decade.

“The main impact would be on oil and gas company profits,” the report said. “Research suggests little impact on gasoline or energy prices for U.S. consumers and little impact on our energy security.”

Doing away with fossil fuel subsidies has been tried before, with little success given both industry and congressional opposition.

Beef up the Internal Revenue Service

The Internal Revenue Service has struggled with budget cuts and slim resources for years. The Biden administration believes better funding for the tax collection agency is an investment that will more than pay for itself. The plan released on Wednesday includes proposals to bolster the I.R.S. budget so it can hire experts to pursue large corporations and ensure they are paying what they owe.

The Treasury Department, which oversees the I.R.S., noted in its report that the agency’s enforcement budget has fallen by 25 percent over the last decade and that it is poorly equipped to audit complex corporate filings. The agency is also unable to afford engaging in or sustaining multiyear litigation over complex tax disputes, Treasury said.

As a result of those constraints, the I.R.S. tends to focus on smaller targets while big companies and the wealthiest taxpayers are able to find ways to reduce their tax bills.

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Tax planning for setting up of a new business

Ajit Majumder

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Tax planning: OBJECTIVES: Reduction of tax liability Minimisation litigation Productive investment Healthy growth of economy Economic stability Benefit accrued from “MAKE IN INDIA”: Facilitating USD 55 Billion investments to create 1.6 million jobs FDI flow USD 130 Billion [2014-16] Enabling startups with the INR 10,000 crore “Fund of Funds” Provisions made for startups to get tax exemption for 3 years 3,43,311 youth trained with 81% placement[2014-16]


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Tax Services

Top 21 Tax Questions from Small Business Owners

Tax, Bookkeeping, Corporate Tax Filing

From home office expenses to insurance to equipment write-offs, we answer the 21 most common tax questions from small business owners.

A small business owner’s main goal at tax time is to maximize deductions and minimize tax liabilities. This process often comes with many technical questions. Where do personal and business expenses intersect and diverge? What is legal and what will be flagged? The answers are not always cut and dry. Requirements change from year to year. Regulations differ from state to state and city to city.

To help clarify some of the concerns business owners encounter, we are answering some of the most common tax questions from small businesses to their tax professionals. Naturally, situations get more complex depending on the size of the company, but these general rules will help guide you towards reducing your taxes .

Small business tax FAQ

Q: how often do i need to pay income taxes for my new business.

A: If you were previously employed, you are probably familiar with filing an annual tax return. The payments you made toward the taxes you owed were deducted each pay period and paid by the employer quarterly. The federal income tax system is a pay-as-you-go system, so you should expect to make quarterly estimated tax payments based on your earnings and receipts. These installment payments will then offset your tax bill when you file your annual return.

Q: Do I need to keep receipts if I pay for things with the business account?

A: You may use different types of documentation beyond paper receipts for certain expenses. Bank statement line items are usually sufficient for gasoline purchases and software subscriptions, for example. For fixed assets, travel expenses and items purchased for the purpose of making your products (i.e., your Cost of Goods sold), you will want to be more diligent in keeping receipts and indicating how the items or services were used in your business.

Keeping paper copies is not necessary. You can use an app or your phone’s camera to keep a record of each receipt, then destroy the original copy if you prefer. The IRS rules about records and specific travel, meals and entertainment expenses can seem unwieldy, but business owners often find that if they aren’t carefully tracking their receipts, they miss potential deductions.

Q: Is my gym membership a personal or business expense?

A: It’s a personal expense; however, if you create a private gym within your business location that is open to all employees (and not to the public), the expenses for the facility may be tax deductible.

Q: Can I take a deduction for my home office when it’s part of my dining room?

A: Yes, you usually can take a home office deduction if you have converted part of your home and use it regularly and exclusively for managing your business. The same can be true if the location is in a barn, garage or studio, regardless of whether you own or rent your home.

There are two calculation methods available:

Q: I have a car that I use for business, but the car loan is in my personal name. I’ve been paying the loan from the business account. Can I continue to pay the personal loan from the business account?

A: The car loan should be in the name that matches the account from where it’s paid. In this case, put both the car loan and payments under your business name. If you keep the loan under your own name, you should pay it from your personal account and then deduct mileage and other auto expenses on your personal return for business use.

Q: Are leasing trucks, cars and materials specifically for jobs tax deductible?

A: Yes, these are tax-deductible. Review our Lease Accounting (ASC 842) guide if you need more information about how to properly record leases for your business.

Q: Can I write off meals for anyone I take to dinner if we talk about business? What entertainment expenses are allowable?

A:  Yes, documented business meals are deductible—but within reason. Lavish meals that are perceived as entertainment can get your tax return flagged. Entertainment expenses have not been tax deductible since the 2017-2018 Tax Cuts and Jobs Act (TCJA) .

Normally, meals for business purposes are 50% deductible. However, Congress authorized a temporary increase of the deduction in the Consolidated Appropriations Act 2021 (CAA) to 100% for amounts paid or incurred between December 31, 2020, and January 1, 2023, for food and beverage provided by a restaurant. The modification is meant to help the sector revive their businesses post-pandemic.

Q: Is there a limit for deducting gifts I give to clients? Can it be wine and food, or does it need to be promotional items?

A: There is a $25 limit per gift per person, regardless of the type of product you provide. Sadly, this has been the same amount since 1962 and continually gets overlooked in tax reform updates. You can ignore items that cost $4 or less when determining the $25 limit.

Q: Are public transportation and shared ride services (Lyft, Uber, etc.) used to get to business-related meetings or events tax deductible?

A: Yes, these are tax-deductible.

Q: We spend a lot on parking when on-site with clients. Is it a write-off if we are reimbursed by billing the client on the final invoice?

A: If you pay for parking, then you deduct the parking expense. If you pay for parking, then add it to the invoice for reimbursement, then you must include that as income. The parking income and expense will offset each other.

Q: If I do business while I’m out of town, is the trip a write-off?  How much can I write off?

A: You can deduct all travel-related expenses on a trip if the expenses are related to business. For example, if you are on a five-day trip, and you do business on the trip on one day, you can write off one night of the five for lodging. A best practice is to write the reason for the expense on each receipt, including names and topics discussed.

If you find receipt tracking challenging, you can consider using the IRS per diem rate for your destination city. The rates are updated annually each September. If you are at a convention or conference, keep related materials. The IRS may check the nature of conventions and seminars to gain an understanding of whether the trip was relevant to your business.

Q: With regard to clothing, are uniforms or other work clothes deductible? What constitutes a uniform?

A: If a uniform or special work clothes are mandatory on condition of the job and not suitable for everyday wear, you can deduct their cost and upkeep. This can include laundering costs and dry-cleaning expenses.

As a business owner, you can maximize your deductions if the following conditions are also met:

Q: Are my medications a write-off?

A: Only on your personal tax return. They should not be paid for using the business account.

Q: Can the business pay for my health insurance?

A: Yes. As a general rule, if you offer insurance to one full-time employee, you must provide it for the rest of your full-time employees. The same thing applies with part-time employees.

Also, if your entity is an S-Corp and you are a shareholder of greater than 2% of the S-Corp, then the premiums paid on your behalf will be reported on your W-2 as wages, subject to income tax withholding.

If your business has 25 or fewer full-time employees and meets other criteria, you may also qualify for the Small Business Health Care Tax Credit , which could help offset as much as 50% of your premium cost.

Q: Can the business cover my life insurance policy?

A: Yes, but the premiums are not usually deductible. You may not deduct the cost of premiums for life insurance where you, the business owner, are directly or indirectly the beneficiary.

Q: Can I take a loss on equipment that breaks and is unfixable? What if my work truck is a total loss? How do I handle that?

A: If the equipment is on your fixed asset table and gets depreciated but is now unusable, you can dispose of the asset and take a loss equal to the amount of depreciation that has not been taken.

If you recorded the equipment under Section 179 (of the TCJA) , you booked the expense when you purchased it, so you cannot further reduce your taxes with a write-off. The truck follows the same rules. You will still deduct interest payments on the note until you close out the loan with your lender.

Q: How much student loan interest is tax-deductible?

A: Student loan interest is not separately tax-deductible on your business return, but could be an included deduction within your educational assistance program (EAP) if you have one set up. On a personal return, up to $2,500 of student loan interest can be deducted with the amount being phased out depending on your income.

The CAA extended the CARES Act provision to provide tax-free qualified educational assistance through 2025, where employers can provide up to $5,250 annually in tax-free compensation to eligible employees. If an EAP payment is made toward a student loan, the student cannot also take the $2,500 interest deduction made with those funds.

Q: Is there a best practice for setting up a chart of accounts in QuickBooks or Xero?

A: Yes. Ideally, you want to use a four- to six-digit account number. The first number indicates the type of accounts that are within that series. Set incremental number groups up within each type for each sub-category of accounts.

Q: How much miscellaneous income and expense is allowable? I’m asking, because they are each a category in QuickBooks.

A: There is no dollar amount threshold, but generally speaking, try not to use miscellaneous accounts at all unless it is for a truly infrequent and unusual transaction. As a business owner, something categorized as “miscellaneous” does not provide you with information or business insights. Every type of income and expense should have an associated account.

Q: What do I need to consider if I hire my daughter or spouse to help with my family business?

A: Employer obligations outlined by the IRS are dependent on your business structure (sole proprietor, corporation, partnership, or estate). For example, a sole proprietor hiring their child won’t need to deduct social security, Medicare or Federal Unemployment Tax (FUTA) when the child is under 18 years of age. The FUTA exemption continues until they are 21 and also applies to spouses of any age. Naturally, these family members need to be treated like real employees and compensated fairly (and not to excess). And, you need to comply with all labor regulations.

Q: I’m a sole proprietor. If I make a donation to a charity, is it deductible for my business?

A: No, not for your business. Charitable contributions for sole proprietors are deducted on your personal return (Schedule A) rather than your business return (Schedule C).

Getting ready for tax time

If you have a list of tax questions for small business situations, or your tax situation seems to be more complicated than you anticipated, Paro can match you with a vetted tax professional  who can review your questions and concerns and guide you toward your tax planning goals.

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Retirement Planning

What Is Tax Planning?

Understanding tax planning, retirement saving strategies.

Tax Planning: What It Is, How It Works, Examples

Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia.

tax planning regarding new business

Tax planning is the analysis of a financial situation or plan to ensure that all elements work together to allow you to pay the lowest taxes possible. A plan that minimizes how much you pay in taxes is referred to as tax efficient . Tax planning should be an essential part of an individual investor's financial plan. Reduction of tax liability and maximizing the ability to contribute to retirement plans are crucial for success.

Key Takeaways

Tax planning covers several considerations. Considerations include timing of income, size, and timing of purchases, and planning for other expenditures. Also, the selection of investments and types of retirement plans must complement the tax filing status and deductions to create the best possible outcome.

Saving via a retirement plan is a popular way to efficiently reduce taxes. Contributing money to a traditional IRA can minimize gross income by the amount contributed. For 2022, if meeting all qualifications, a filer under age 50 can contribute a maximum of $6,000 to their IRA with an additional catch-up contribution of $1,000 if age 50 or older. That number rises to $6,500 in 2023, with the catch-up contribution holding steady at $1,000.

For example, if a 52-year-old male with an annual income of $50,000 who made a $7,000 contribution to a traditional IRA has an adjusted gross income of $43,000, the $7,000 contribution would grow tax-deferred until retirement.

There are several other retirement plans that an individual may use to help reduce tax liability. 401(k) plans are popular with larger companies that have many employees. Participants in the plan can defer income from their paycheck directly into the company’s 401(k) plan. The greatest difference is that the contribution limit dollar amount is much higher than that of an IRA. 

Using the same example as above, the 52-year-old could contribute up to $27,000 into their 401(k) in 2022 (rising to $30,000 in 2023). That's because in 2022, if a person is under age 50, the salary contribution can be up to $20,500 ($22,500 for 2023), or up to $27,000 ($30,000 for 2022) if age 50 or older due to the allowed additional $6,500 catch-up contribution. The catch-up contribution for 2023 rises to $7,500.

Tax Planning vs. Tax Gain-Loss Harvesting

Tax gain-loss harvesting is another form of tax planning or management relating to investments. It is helpful because it can use a portfolio's losses to offset overall capital gains. According to the IRS, short and long-term capital losses must first be used to offset capital gains of the same type. In other words, long-term losses offset long-term gains before offsetting short-term gains. Short-term capital gains, or earnings from assets owned for less than one year, are taxed at ordinary income rates.  

As of 2022, long-term capital gains are taxed as follows: 

In 2023, long-term capital gain limits will be increasing to the following:

For example, if a single investor whose income was $100,000 had $10,000 in long-term capital gains, there would be a tax liability of $1,500. If the same investor sold underperforming investments carrying $10,000 in long-term capital losses, the losses would offset the gains, resulting in a tax liability of 0. If the same losing investment were brought back, then a minimum of 30 days would have to pass to avoid incurring a wash sale .  

According to the Internal Revenue Service, "If your capital losses exceed your capital gains, the amount of the excess loss that you can claim to lower your income is the lesser of $3,000 ($1,500 if married filing separately) or your total net loss shown on (line 21) of Schedule D (Form 1040 or 1040-SR).

For example, if the 52-year-old investor had $3,000 in net capital losses for the year, the $50,000 income will be adjusted to $47,000. The remaining capital losses can be carried over with no expiration to offset future capital gains.

Internal Revenue Service. “ Retirement Topics - IRA Contribution Limits ."

Internal Revenue Service. " 401(k) Limit Increases to $22,500 for 2023, IRA Limit Rises to $6,500 ."

Internal Revenue Service. " Traditional IRAs ."

Internal Revenue Service. " Topic No. 409 Capital Gains and Losses ."

Internal Revenue Service. " Rev. Proc. 2021-45 ," Pages 8-9.

Internal Revenue Service. " Rev. Proc. 2022-38 ," Pages 8-9.

Internal Revenue Service. " Publication 550 (2021): Investment Income and Expenses ," Page 56.


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Missing tax forms will 'definitely' delay your refund, expert warns. How to know which ones you need


If you're banking on a refund this tax season, the IRS has a warning: You should file a complete and accurate return to avoid delays .

While it's been a smoother filing season compared with years past, it's still important to file correctly the first time, experts say. One way to avoid possible issues is by getting organized with the necessary tax forms, known as information returns, sent to the IRS and taxpayers yearly.

"Missing tax documents are definitely going to cause a refund delay," said Sheneya Wilson, a certified public accountant and founder of Fola Financial in New York.

More from Smart Tax Planning:

Here's a look at more tax-planning news.

Here's why: If you skip tax forms received by the agency, the IRS systems may flag your return and mail you a notice, she explained.

Whether you're working with a tax professional or filing on your own, here's what to know about your tax forms — and when to expect them.

When you'll receive each tax form

While most tax forms have a Jan. 31 deadline, others aren't due until mid-February or beyond, said certified financial planner John Loyd, owner at The Wealth Planner in Fort Worth, Texas. 

For example, the deadline for 1099-B for capital gains and losses and 1099-DIV for dividends and distributions is Feb. 15. But some investment firms get an extension from the IRS for more time to validate forms and avoid corrections, meaning you may not receive these forms until March, Loyd said. 

If you do need a corrected form, it can slow down your filing process because it takes time for the investment firm to update and reissue your documents, he said.

Regardless of your situation, it's important to have all the necessary forms handy before filing your return, Loyd said. "It's 1,000 times better" to file correctly the first time, he added, noting that IRS notices may take months to resolve.

Here's a breakdown of the billionaire tax rates

Make a checklist with last year's return

If you're not sure which tax forms to expect, experts say last year's tax return is a great starting point.

"I go page-by-page with the prior year and current year's [returns]," said Marianela Collado, a CFP and CEO of Tobias Financial Advisors in Plantation, Florida. She is also a CPA. "That's always a good check," she said.

For earnings, some of the common forms include a W-2 for wages, 1099-NEC for contract or gig economy work, 1099-G for unemployment income and 1099-R for retirement plan distributions. 

For 2022, you probably won't receive a 1099-K for payment apps such as Vemno or PayPal unless there were more than 200 payments worth an aggregate above $20,000. If you receive this form by mistake, the IRS said it is working on guidance.

Of course, it's also important to make sure the numbers on your tax return match those on your 1099s because "that's something that could trigger a delay," Collado said.   

As for tax breaks, you may need forms 1098 for mortgage interest, 5498 for individual retirement account deposits, 5498-SA for health savings account contributions, 1098-T for tuition, 1098-E for student loan interest and more.

More In Smart Tax Planning

IRS commissioner nomination advances amid debate over $80 billion agency funding

Tax Planning For Setting New Business

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tax planning regarding new business

Republicans want to replace federal taxes with a flat sales tax. It'll either add trillions to the national deficit or you'll have to pay a lot more for everything.

Republicans want to slash taxes and government spending, and their big plan to do just that hinges on abolishing the IRS and replacing most federal taxes with a flat 23% national sales tax .

There's just one problem, according to a new report out of the Brookings Institute: That "FairTax" proposal, which would amount to a 30% markup on just about everything's sticker price, making the tax 23% of an item's total price including the tax, would actually add nearly $10 trillion to the deficit over the next 10 years — running counter to Republicans' insistence that the deficit should be reduced.

William G. Gale and Kyle Pomerleau argue in their Brookings article that the FairTax's proponents don't deal with how prices would change for consumers and businesses in a consistent way; adjusting for that inconsistency would lead to a much higher tax rate needed to match current tax revenues, even under favorable assumptions like a lack of tax evasion and no changes in government spending. That adds nearly $10 trillion to the deficit over 10 years, according to Gale and Pomerleau.

In an email, Pomerleau said that the simplest way to understand the mismatch was in terms of inflation.

"If the price level suddenly increased by 10% tomorrow, everything denominated in dollars would rise in price by 10 percent (goods and services, wages, profits, etc). However, the real value of everything would remain the same. At the same time, government spending would have to rise with the 10% inflation to keep up, otherwise real spending falls," Pomerleau said.

"This is roughly the problem with the proponents' original estimates. They assumed that when the tax is levied, it is added to the price of goods and services (prices go up). But they assumed that government spending doesn't rise at the same time, which means a real reduction in spending."

Instead, if the FairTax wanted to break even, it would have to be 39% on the sticker price of goods and services in a world without tax evasion. When factoring in a 17% tax evasion and avoidance rate — the current evasion rate on income tax — the rate would have to be nearly 52% to keep revenue at the same levels. And, as the authors note, it's optimistic to assume even that low level of evasion, if there's no IRS to crack down on people getting out of paying.

In short, if FairTax wanted to maintain current levels of government revenue and spending, you'd have to pay over 50% more on things like food, electronics, and pretty much anything else you need to buy. That rate could get even higher if there were exemptions for necessities and state and local government taxes, according to Brookings, meaning it'd have to reach 85.5%. 

"Our country doesn't have a revenue problem, it has a spending problem. Under President Biden, the federal government has seen record revenue and is still projected to sustain trillion dollar deficits," Rep. Buddy Carter, who introduced the legislation , said in a statement to Insider. "We need to cut the spending, put money back into Americans' pockets, and simplify our tax code so it works for - not against - hardworking taxpayers. The FAIRTax won't make the government richer, but that's the point."

It's not the first GOP tax legislation that would tack billions onto the deficit. The House GOP's proposal to roll back $80 billion in funding for the IRS would actually add a net $114 billion to the deficit, according to the nonpartisan Congressional Budget Office . 

But don't expect a FairTax emerging or the IRS disappearing anytime soon. The White House has been adamantly opposed to the FairTax legislation, and President Joe Biden has said he'd veto any bills like it if they came to him.

The Biden administration also continued to express its disapproval of the plan. White House spokesperson Michael Kikukawa told Insider, "only House Republicans could come up with a policy that cuts taxes for the wealthy, increases taxes for working people, and adds $10 trillion to the debt—all at the same time. This is on top of the $3 trillion that Republicans want to add to the debt with tax giveaways to wealthy tax cheats, Big Pharma, big corporations, and other special interests. Given Congressional Republicans' claims that they care about the debt while proposing increasing it by trillions of dollars, the American people deserve to know what they plan to cut. Is it Social Security, Medicare, Medicaid and the Affordable Care Act, as they have repeatedly proposed?"

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