Tax Tidbits: Is It Prep or Advisory? Part Two

When our business or personal filing clients are in the thick of the #taxseason, sometimes there is confusion behind what is included within the filing process, and what is considered "advisory".

Accountfully offers a wide array of tax-related services that can support a more efficient filing process. Here is a detailed look into more #TaxAdvisory areas you may need to consider when/if they apply to you or your business:.

Employee Benefits and Compensation Planning

Just typing this out feels more "human resources" than taxes, but they definitely overlap. When growing your business and hiring, it is not only important to understand where you stand in the realm of how much salary and benefits you can afford, but how these decisions impact your tax reality as a business owner.

You will want to attract top talent by ponying up a quality compensation package, but not break the bank in taxes or benefits spend. Like all business areas, you will also need to stay compliant across all of these activities.

Involving a Tax Advisor will help proactively navigate the following five areas:

1. Tax Efficiency: Structuring employee benefits and compensation packages can impact the tax liabilities for both the employer and the employees. Tax advisors help in designing these packages to maximize tax efficiency, ensuring that both parties benefit from available tax deductions and exemptions.
2. Compliance: Tax laws and regulations often dictate how benefits and compensations should be structured and reported. Tax advisors ensure that the employer complies with these laws, avoiding penalties and legal issues.
3. Cost Management: Effective benefits and compensation planning involves managing costs while providing attractive packages to employees. Tax advisors help in evaluating the financial implications of different options, ensuring that the chosen plan is both beneficial to employees and cost-effective for the employer.
4. Employee Retention and Motivation: The design of benefits and compensation packages can influence employee retention and motivation. Tax advisors consider the tax implications of various incentives and perks to help employers create packages that align with their retention and motivational goals.
5. Risk Management: Tax advisors assess the potential risks associated with different benefit and compensation structures, such as exposure to tax audits or compliance issues. They provide guidance on mitigating these risks through proper planning and documentation.

Tax Credits and Incentive Advice

The age-old focus come tax time is typically "how many write-offs can I capitalize on?" Any seasoned business owner knows this is an amateur's way to approach maximizing tax outcomes. The key to making the most of your eligible credits and incentives is to do it properly. With documentation, within compliance, and most of all, strategically. Like, born from the strategy of a true Tax Professional's advice. This is truly one of those "an ounce of prevention is worth a pound of cure"-type situations for cash-strapped business owners.

Taking the time to proactively plan your tax strategy can help in multiple ways, come tax time. Here are just a few ways this forward-thinking advisory can help:

• Identification of Eligible Credits and Incentives: Tax advisors help small businesses identify which tax credits and incentives they qualify for, such as the
• Maximizing Benefits: Advisors ensure that businesses claim the maximum amount possible by thoroughly understanding the qualifying criteria and applicable limits. This involves detailed knowledge of the tax code and staying up-to-date with changes in legislation.
• Proper Documentation and Compliance: Claiming tax credits and incentives often requires substantial documentation and adherence to specific regulations. Tax advisors help businesses gather and maintain the necessary documentation, ensuring compliance and reducing the risk of disallowed claims.
• Strategic Planning: Tax advisors can assist in planning business activities and investments in a way that maximizes tax benefits. For example, timing capital expenditures or hiring decisions to take full advantage of available credits and incentives.
• Filing Assistance: They can help with the accurate and timely filing of tax returns, ensuring that all eligible credits and incentives are correctly claimed. This reduces the likelihood of errors that could trigger audits or penalties.
• Audit Support: In the event of an audit, tax advisors provide support by representing the business and addressing any questions or challenges from tax authorities regarding claimed credits and incentives.

Common "side effects" from working with a seasoned Tax Advisor include cash flow benefits and becoming more educated in tax as a business owner. More cash and better decision making will ensue due to the following:

• Cash Flow Improvement: By effectively leveraging tax credits and incentives, small businesses can improve their cash flow. This can be crucial for growth, allowing for reinvestment into the business or other strategic initiatives.
• Education and Training: Tax advisors often educate business owners and their teams on available tax benefits, helping them make informed decisions throughout the year rather than just during tax season.

State and Local Planning and Nexus Advice

This area of tax expertise is a very common one, especially with our eCommerce clients. The rise of D2C online stores that sell from multiple warehouses across the world, can mean some tricky tax situations. You are based in California, but your warehouse ships from Virginia. Now Nexus comes into the picture. While most eComm sites like Shopify do a really good job of helping you get set up, it is always best to cross-check this with someone who knows the ins-and-outs.

Planning for sales tax can get very complex, quickly depending on where you hold inventory and where you sell from. This is an area that is worth consulting with a tax advisor on. You need to ensure your unique situation is operating under compliance and staying current with any changes to tax laws.

Advisory support in this area can range from helping you chose taxpayer-friendly locations and find ways to structure transactions to minimize spending.

More specifically, they support the following:

Nexus Analysis:

• Identification of Nexus Triggers: Tax advisors help businesses determine if they have a tax nexus in a particular state or locality based on factors such as physical presence, economic presence, or sales thresholds.
• Multi-State Activities: They analyze business activities across different states to identify where nexus has been established, ensuring compliance with each state’s nexus rules.

Compliance Guidance:

• Registration Requirements: Advisors guide businesses through the process of registering for state and local taxes in jurisdictions where nexus has been established.
• Ongoing Monitoring: They continuously monitor business activities to identify any changes that may create new nexus obligations, ensuring ongoing compliance.

Mitigation Strategies:

• Risk Assessment: Tax advisors assess the risks associated with potential nexus in various jurisdictions and develop strategies to mitigate those risks.
• Structural Planning: They help businesses structure their operations and transactions to minimize nexus exposure, such as through the use of separate legal entities or careful planning of interstate activities.

Once the sales tax strategy for your business is on track, the consistent and accurate filing can be done on a regular basis by your accounting team, ensuring a smooth (and boring) tax year.

Takeaways From Round Two of Tax Advisory Tidbits

Having these three items dialed in before it is time to file requires proactive, year round advisory conversations with a tax team. Imagine what a few hours of conversation and planning can do to improve outcomes in the coming years! Knowing what is included in a filing versus what is considered advisory is step one in success!

?? Stay tuned for additional tips on this subject, or consult our growing bank of resources on YouTube and our blog.

?? For more ideas and insight into adopting a year-round tax strategy, you can also consult our Tax Guide or simply grab some time on my calendar for a chat.