As long as you are running a business, you are required to pay corporate tax. It is a direct tax imposed by the government on the income of corporations or any similar legal entities and often taxed at the minimal rate. It’s almost close to impossible to avoid paying taxes. However, with proper planning, a company can reduce its taxes and grow its working capital.
Who Is Required to Pay Corporate Tax?
Corporate taxes are taxed on corporations that are incorporated and operating in a given country, corporation operating on income from that particular country, and foreign corporations that have established permanent residence in a given state. However, not all corporation are taxed equitably. For instance, US Corporations working abroad can quickly shift their profits from the US to tax heavens when compared to wholly domesticated businesses. Again, corporations, which have numerous trademarks and patents, can also move their profits to tax havens.
Some companies (S corporations) are, however, exempted from paying taxes at the corporate level, and these lead to the corporate shareholders paying for individual income tax.
Tax Reduction through Proper Tax Planning
Proper corporate tax planning is essential for any business that wishes to increase their profits while still meeting their obligation to the government. Reduced taxes are achieved by employing various methods that include:
1. Inventory Control and Evaluation Method
Controlling a company’s inventory cost by knowing the appropriate times to make purchases and how to make them can positively impact the corporation’s tax deductions. This is where the skills of a good tax planning accountant come in handy.
A corporate can utilize the LIFO and FIFO inventory evaluation methods to cut down their taxes. LIFO (last in, first out) is best preferred in times of rising cost while FIFO (first in, first out) is useful in times of deflation.
2. Accounting Methods
Accounting methods also affect the taxes you are required to pay and the cash flow into your business. We usually have the accrual and cash methods. Through the cash method, taxes can be reduced by delaying billing, i.e., income is only recorded once received. Accrual method, on the other hand, recognizes debts and profits once they occur.
Corporate Tax Preparation
For corporate tax preparation, especially income tax return for your company, you will first be required to obtain your company’s balance sheet and income sheet. Next, you will need to get the corporate tax forms and schedules. Having troubles finding the forms and schedules? If yes, try checking with your State’s Revenue Agency website.
You will find all the types of schedules and forms with your Revenue agency that you would require for your company’s tax returns. It’s important to learn the basics and uses of each form and schedule.
If you are having troubles filling out the tax returns forms, you can consider outsourcing your tax preparations. Such firms that do tax returns on your behalf not only prepare taxes but also offer a range of services to ensure efficiency throughout the process. This can be attributed to their qualified, experienced and expert staff.
Finally, remember to meet the deadlines set to have your returns filled to avoid additional penalty costs. Also, remember to declare if you have nothing to pay.…