Corporate Tax Deadline Nears. What MSPs Should Know About Tax Planning.
Bill Moore
We partner with MSPs to scale in a tax efficient, ca$h rich, profitable manner◆ CFO Services & Tax Strategist ◆ / Managed Service Providers /↑ cash ROI & ↓ taxes by $20k-50k+ / yr
Tax season is here, and corporations that operate on a fiscal year have until April 18th to submit their 2021 corporate tax returns. For S corporations and partnerships operating on a calendar year, the corporate tax deadline and last date to file for an extension is March 15th.
As a small business owner, filing your taxes can be a very tedious and stressful undertaking but with proper planning and execution, the process can be seamless. It's important to understand your federal, state, and local tax requirements before filing corporate taxes which is where tax planning comes in handy.
Tax Preparation is not the same as Tax Planning
Many small business owners confuse tax preparation with tax planning but the two services are very different. Business owners must understand these differences to fully appreciate how tax planning can help them minimize tax liability and build tax-free wealth. Tax planning involves a more detailed, strategic analysis and preparation of a company’s taxes to help them achieve tax efficiency and maximize tax savings.
MSPs can realize huge savings with the right tax strategy.
Effective Tax planning is one of the most overlooked and underutilized ways small businesses can save money. In fact, with the right tax planning strategy small businesses can save thousands of dollars. Tax planning shouldn't be a once-a-year exercise but should be a proactive strategic process leading up to the time you’re about to file your taxes. Filing taxes can be very demanding, even for the most organized small business owner, so it’s imperative to start your tax planning early. Don't procrastinate as tax filing deadlines can creep up on you, and there's nothing more frustrating than having to pay a fine that was avoidable. As the tax deadline approaches, small business owners should be completing paperwork, gathering important documents, crunching numbers, and finalizing their tax-saving strategies.
An effective tax planning strategy should help you with:
Tax planning can be complex but taking the time to implement a tax strategy can be very beneficial to your business. Here is a simple checklist to help small business owners with their tax planning strategy:
? Start Early – Tax Planning should never be an afterthought.
? Stay organized throughout the year - keeping your tax documents organized throughout the year will help lessen the stress and discomfort of tax season.
? Keep abreast of income tax rules and changes. Tax laws change often and with the ongoing pandemic, government support, etc, there were a lot of changes that could affect your income tax return.
? Know and understand your tax bracket.
? Learn about the different tax deductions and tax credits available as both can reduce your tax liability - there are hundreds of possible deductions and credits to use to your advantage.
? Know what tax records to keep and how long to keep them.
??Research on tax shelter or tax deferral opportunities available for your business.
Tax Planning for MSPs
With increased Merger and Acquisition activity in the Managed Service Providers (MSP) space and rising demand for their services, MSPs are faced with more net income, increased cash inflows, and an increasing income tax burden. More than ever, MSPs need to implement strategies to minimize their income tax burden and retain profits for their continued operations. Many service providers today benefit from rapid innovation and growth. However, rapid innovation could increase tax compliance risks and other types of taxes such as communications tax. MSPs are offering a wider variety of services to their clients and should take the time to understand the potential tax treatments of new service offerings.
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Many MSPs offer communications services, and these come with distinct, complex, frequently changing taxes that can cut into margins if not handled correctly. Depending on the services that MSPs provide and how they are sold, delivered, and used, these business operations may span multiple taxing jurisdictions with highly varied regulations. To stay ahead of these complexities, these companies are relying more on communications tax specialists, and qualified tax advisors to help them with their tax planning and filing.
Conclusion
Many small business owners will shortsightedly implement a few tactics to temporarily reduce taxes rather than implementing a comprehensive long-term strategy for mitigating their income tax liability. This is not the best approach. Small businesses cannot expect to operate successfully and profitably without having well-thought-out strategic plans for minimizing their tax bills. MSPs that are serious about minimizing taxes, growing tax-free wealth, and increasing their profits should consider the services of a qualified experienced tax planner before filing corporate taxes.
Economic Highlights
U.S. Inflation Rate Accelerates to 7.5%, a 40-Year High
In January, the annual inflation rate in the US accelerated to 7.5%, the highest since February 1982 due to soaring energy costs, labour shortages, and supply disruptions coupled with strong demand. Energy prices rose in early 2022 due in part to the Russia-Ukraine tension, which will continue to have an impact on inflation rates. Food and energy prices rose sharply in January, with energy prices up 27% and food prices up 7% from the previous year. The continued rise in inflation is another reminder that the Fed is likely to start raising interest rates over the next few months.
“I think the Fed will raise rates three to four times this year,” said Larry Adam, chief investment officer at Raymond James.
U.S. GDP Growth
The U.S. economy bounced back sharply in the fourth quarter as consumers started indulging again after a spike in covid cases eased and businesses restocked depleted inventories.
Economists surveyed by Bloomberg had forecasted a 5.3% rise in GDP, however Real GDP, increased to 6.9% in the 4th quarter up from 2.3% in the 3rd quarter. In 2021, the US economy grew 5.7% it's best showing since 1984, as activity revived amid the pandemic.
Russia invades Ukraine Causing World Unrest
Energy markets rely heavily on Russia as one of their largest oil producers and sources natural gas (35%). Russia’s invasion of Ukraine has caused economic stress and turmoil.
Oil Prices - U.S. crude prices surged 56% year to date to over $112, still below the all time high it reached of over to $143 in 2008.
Stock Market – All 3 indexes have been volatile due to the invasion of Ukraine from Russia. As of today, March 3, 2022, the S&P 500 fell .53%, the Dow lost .29% and the Nasdaq declined 1.56%.
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