Integrate Tax Planning into business forecasting

Preparing short-term and long-term forecasts is a valuable process that successful business owners do regularly to plan for future growth and profitability. However, these forecasting models are made difficult by ever-changing tax laws and typically do not factor in taxes at all. At the highest federal and state tax rates, a business’ profits could be reduced by 45 percent if proper tax planning is not performed.

For the past few years, Congress has left business and individual taxpayers in limbo with expiring tax laws. This tax uncertainty wreaks havoc on the ability of businesses and individuals to plan for the future and estimate what their tax liability will be. This affects not only the current tax year, but also estimating what that tax liability will be two to five tax years down the road. When President Obama signed the Protecting Americans from Tax Hikes Act of 2015 (“PATH Act”) on Dec. 18, 2015, some tax-law clarity was provided to millions of taxpayers. Tax practitioners can help their clients save tax dollars now by planning for future events.

With this information, business owners can plan and forecast to maximize current tax deductions by ensuring that they do not exceed the $2 million threshold and maximize the $500,000 deduction. In any given forecasted year, if qualifying property expenditures were to exceed $2 million, advisors should be recommending that their clients delay the qualifying property purchase into a future tax year or accelerate the purchase into the current year if the $2 million limit has not been exceeded. There are other limitations that can be forecasted regarding Section 179 expensing, such as the business-income limitation which only allows a Section 179 deduction up to the taxable income from the active conduct of any trade or business.

Successful businesses make it a practice to prepare forecasts by integrating tax planning. The key is to monitor their actual performance towards these goals and then implement tax planning solutions during the year.  

Click here to read the full article posting in the Delaware Business Times.
Article written by Craig Anderson & Jeff Mitchell - Siegfried Advisory