Business Tax Planning
Updated: Nov 13, 2020
Tax season is overwhelming for all of us but especially for business owners. Owning a business creates complexities in maneuvering tax laws and require more time and effort in the gathering of tax documents. To give a basic understanding of the importance of business tax planning, we interviewed two professionals- Colin Kelty and Jay Piell. Colin is a Senior Financial Advisor at AFIN Family Wealth Management*, and Jay is a Certified Public Accountant, with AFIN Tax and Accounting, with more than 30 years of experience in the industry.
Q: Why is tax planning essential for business owners?
Jay: It's important because you don't want the government to be your partner in your business. You are the one who works hard for it every day. You work 5-7 days a week, and you want to keep what you earn to provide for your family, retirement, and kid’s education.
Colin: Business owners have a special asset that most Americans don't have, their business. They are subject to taxes, credits, and write-offs outside of the norm, and thus business tax planning offers a whole world of tax solutions. Business owners have more complex taxes than regular individuals and, if neglected, more massive tax bills, so it is worth spending more time planning for themselves and their businesses.
Q: What do you see as the leading tax and accounting challenges small businesses to face when they come to you?
Jay: Keeping current and staying up to date with compliance, rules, and regulations. New laws and regulations come up every day.
Colin: Taxes are complicated. Small businesses come to us to get advice about what to do with their money- how to best structure their income, manage their assets, plan for goals, and decide the type of retirement plan that fits their business the best. They also want to know how to file taxes, so they don't miss deductions or potential money-saving ideas. The biggest challenge is bringing tax and investment planning together. Therefore, at AFIN, we combined those services under one roof to simplify the process for clients.
Q: What are tax myths people should be aware of?
Jay: Tax loopholes, there are no loopholes. There are only planning opportunities because the government takes everything into account. However, no tax code rule says you cannot minimize the amount of tax you pay.
Colin: That there is some magic way to reduce their taxes. Every rule and manner of minimizing taxes is already written. It is up to us to help our clients plan to make the most of the situation within those rules.
Q: Can you give an example of tax strategies that a small business owner could utilize to save for retirement?
Colin: There are multiple retirement plans available for business owners. Most businesses should have a qualified retirement plan (QRPs) such as a SEP IRA, Simple IRA, 401(k), cash balance plan, etc. However, no one plan fits all and many factors need to be considered when picking the right plan. For example, you can contribute as a small business owner to your own 401(K), which both employers and employees can benefit from. Additionally, you could use cash balance plans that could be used in conjunction with 401(K), allowing for significantly larger contributions for the owners of a company than would be possible in normal retirement plan construction.
Author: Mahym Gulova
*Securities and insurance products are offered through Cetera Investment Services LLC (doing insurance business in CA as CFGIS Insurance Agency), member FINRA/SIPC. Advisory services are offered through Cetera Investment Advisers LLC. Cetera is under separate ownership from any other named entity.
Registered Address: 1220 Kensington Rd, Suite 220, Oak Brook, IL 60523
Registered Phone: 630-686-1463
Please note that neither Cetera Investment Services LLC nor its affiliates give legal or tax advice. For complete details, consult with your tax advisor or attorney.