The intersection of business strategy and tax planning

As a business owner, you hear the words tax planning and business strategy thrown around a lot. That’s because when they are aligned and working together, your tax plan can help your business goals and vice versa. There are many areas where your business plan and tax plan will intersect. Ensuring that they work together will help you reduce your tax burden to ensure that you have the funds to reach your business goals.

Where Your Tax Planning and Business Strategy Intersect

On the surface level, it may seem like your business plan, life plan, and tax plan are separate things. But these three important plans intersect and should work harmoniously to help you achieve your overall business and life plans. In many ways, your tax plan is the key to unlocking the goals you want to reach with your business and life plans.

To understand how these plans work together, you first need to understand what tax planning is.

What is Tax Planning?

Tax planning is not the same as tax compliance or tax filing (which are also important). Rather, tax planning is the process of analyzing your business and life to find ways to legally maximize tax breaks and minimize your tax burden.

The process is an ongoing one, and it can help you better understand how your decisions affect your tax liability. If you’re planning an expansion or a new equipment purchase, tax planning will can help reduce tax liabilities so that you have the cash to fund these plans.

For example, let’s say that you want to purchase new equipment for your business. Your tax plan may reduce your tax liability this year so that your business has more money in its bank account to purchase that equipment.

Purchasing new equipment will also help your business reduce its taxes. Timing your purchase for the end of the year can help your business realize greater tax savings.

Now that you have a better understanding of what tax planning is, you can take a step back to review your business strategy and life plan to ensure all three plans are working in-step.

Review or Create Your Business Plan

Your business plan outlines your goals and aspirations for your business’s future. Growth will likely be a part of your plan, but you may have specific milestones that you hope to achieve. These goals should be outlined in your business plan so that they can be aligned with your life and tax plans.

If you already have a business plan, now is a great time to review it. If you don’t, now is a great time to create one.

When reviewing or creating your business plan, consider the following:

  • Your company’s vision, mission and goals. What do you want your business to achieve? What is your purpose? Understanding your goals, mission and vision can help you create a sound business plan.
  • What are your 1-year, 5-year and 10-year plans? Figure out where you want your business to be in the coming years.
  • What is your end game? What will happen to your business if you decide to take a step back, if you choose to retire or if you pass away? Will the business transition to a family member or a partner? Will the business be sold? Plan for these contingencies now to avoid confusion and conflict in the future.

Creating a thorough and solid business plan will give you direction and help you achieve your goals.

Review or Create Your Life Plan

Your business is a big part of your life, but it’s not the only part of it. It’s equally important to create a life plan that helps you achieve your personal goals and life satisfaction.

When creating or reviewing your life plan, ask yourself the following:

  • What does your ideal life look like?
  • How many hours do you want to work? Will these hours change as you age?
  • When do you want to retire?
  • How much money will you need to retire comfortably?

Sit down and really think about how you want to live your life. Achieving a healthy work-life balance and focusing on the things you want to do in life will also help support your mental health.

Make Sure Your Tax Plan Works with Your Business and Life Plans

It’s important to make sure that your tax plan is aligned with your business and life plans. The three can work together to help you achieve your vision, mission and goals as well as your personal life goals.

  • Short-term tax planning can be done annually to help you reach specific objectives in your business plan and minimize your tax burden.
  • Long-term tax planning can help you make smarter decisions on the timing of expansion or major purchases. It can also help you plan now to reduce taxes in retirement, limit the taxes you pay on required minimum distributions, and more.

Proper tax planning can also help you realize your 1-, 5- and 10-year plans by ensuring you have the funds to expand your business or purchase new equipment. If you want to open a new location in five years or launch a new product, you can take steps now to lower your tax burden and ensure that your business is financially prepared for these moves.

On the other hand, maybe you want to increase retirement investments to reach goals in your life plan. In order to do that, you need to ensure that your business plan helps you achieve the growth you need to have the cash for these investments.

Your tax, life and business plans must all work together if you want to reach your professional and personal goals.

Aligning Your Tax, Business, and Life Plans

It’s important for your tax, business and life plans to work together. But getting to that point can be challenging. It’s best to work with a professional to help create cohesion between your plans. The right professional will have the experience and expertise to achieve this goal.

If you need help with your tax planning and/or business strategy, schedule an appointment with us today.

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