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What Is Business Tax Planning?

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  • Written By: C. Mitchell
  • Edited By: John Allen
  • Last Modified Date: 04 November 2016
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Business tax planning is the process that corporations engage in to anticipate, and in many cases minimize, tax liabilities. Nearly every country in the world taxes businesses on a variety of fronts. Profits are almost always subject to taxes, but so are acquisitions, employee benefits and programs, and corporate assets, among other things. By engaging in business tax planning, corporate officers can structure their organizations to maximize possible deductions and write-offs and minimize taxes ultimately owed.

There is no single way to go about business tax planning. It is more a wide methodology than a fixed protocol, and what is good for one company is not necessarily wise for another. Planning techniques effective in one place are rarely useful across borders or under different laws, either.

Tax consequences and laws vary by jurisdiction. Even within given countries and states, however, there are different kinds of taxes and rules based on corporation size, type, and operating scale. Limited liability partnerships are taxed differently than incorporated businesses, for instance. Business tax planning is a means of company planning that both acknowledges and works around known tax consequences.

Multinational corporations must be particularly wary of jurisdictional differences at tax time. In more global settings, business tax planning is often about understanding national differences as much as it is about reducing liabilities. For most, tax planning means both understanding the rules and finding ways to pay less.

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Planning always involves taking stock of assets and estimating tax liabilities well in advance of payment deadlines. Relevant deductions, loopholes, and exclusions are usually studied with some rigor. This gives corporate leaders time to react and re-shuffle certain divisions or debts in order to capitalize on expected tax breaks.

While it is possible to run a business without planning for taxes, it is not usually advisable. Tax codes are complex, but are usually structured so as to reward companies who make sound investing or employment choices. Companies not in the know can miss out on a lot of savings if they do not make the initial investment in business tax planning.

Most business tax planning is done by corporate accountants or lawyers. These professionals work with corporate leaders to explain the governing tax rules and then make recommendations for change. Changes often come as enhanced operational plans and project plans concerning assets, liabilities, and the structuring of internal finances. Big companies often have these advisers on staff. Small businesses often hire outside counsel and accounting specialists to help with strategic planning in anticipation of tax time.

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