It is unfortunate but it seems as though small business owners never have enough time on their hands. As a result, tax planning is something that gets put on the back burner and sometimes never completed. However, tax planning quite often is an item that pays dividends down the road. Overall tax planning is a process that usually involves projecting a full year of business activity based on 9 to 10 months of data and expected yearend activity. At the very least, tax planning can eliminate the unknown worry of owing a large sum of money at the end of the year. By doing this, business owners can position themselves to succeed in the future by reducing their tax liability, which can leave more for investing or saving.

Tax planning can help to reduce a taxpayer’s tax liability or maximize their refunds. There are a number of factors that come in to play though. How is your business doing? If your business is booming this year, you could be left with a large tax bill when your tax return is prepared. The good news is that there are a number of options a business can decide from that can save them money. On the flip side, maybe your business is not having as good of year as anticipated. There are still some actions that can be taken to reduce the amount of other taxes paid, whether its payroll tax or future income tax.

1. Invest in your business – Buy a piece of equipment or vehicle

One of the most efficient ways to reduce taxes is to reinvest in your business. Reinvesting can take a variety of forms, but most commonly involves purchasing new equipment to replace older and/or less efficient equipment. Depending on the equipment purchased, accelerated depreciation can usually be taken to reduce taxable income in the year of purchase.

2. Pay yourself first by starting a retirement plan

A retirement plan can essentially lower the amount of wages that are taxable on your personal return. For S-Corps and C-Corps, the employer match is also deductible for the business, helping to lower the tax liability while putting more away for retirement (paying yourself first). For Schedule C businesses and partnerships, contributions to the plan can create an automatic deduction against your taxable income. Various retirement plans have different limitations based on your self-employment earnings and can be determined when your tax return is filed. Many retirement plans have deadlines for setting up so it is best to know earlier rather than later if setting one up might benefit you.

3. Pay family members

Already have a retirement account but want to put more away? If your spouse is involved in your business, you can put your him or her on the payroll and fund a retirement account for them as well. This again will reduce your overall taxable income and pay yourself first.

4. Donate old or stagnant inventory

If you are a retailer, it is possible that you have some inventory that is not moving much or even has lost its value. Maybe you have considered marking it down to try to sell it at a loss. Another option would be to donate the inventory item to a charity auction or to a location like Goodwill or Saint Vincent de Paul’s. Instead of selling it for less than cost, donating the item could give you a deduction for the cost of the inventory item.

5. Change your business structure

Sometimes the easiest way to save some money is changing the tax structure of your business. There is a certain level of income that a business owner reaches where it becomes more beneficial to be an S-corporation instead of a sole proprietor or partnership. There are a number of different factors that can affect this decision so it is best to talk to your tax professional to see if changing your tax structure would benefit you. Changing your tax structure can be done without changing the legal structure of your business.