Taxes are a subject that many business owners ignore until the end of the year. But in those last few months, it’s no longer possible to avoid thinking about your upcoming tax bill.
For those that have waited, their tax strategy may be to adopt aggressive year-end tactics, like accelerating expenses or spending money on the business to gain breaks. These might be the right strategies for your organization, but they might also look great in the short term, while harming your business next year.
If you don’t already have one, now is a great time to begin your tax planning process for the full year.
What is tax planning?
Business owners usually understand the importance of financial planning immediately, even if they aren’t taking full advantage of it. It’s clear to leaders that having an understanding of what to do with a company’s income and having a plan in place for controlling costs is important in reaching corporate goals.
Tax planning doesn’t seem as obvious, though, despite financial planning and tax planning being closely linked. At its core, taxes are just a large expense item. In fact, it’s a large expense item that has a set of rules around it that should make it easier to plan for.
Waiting to do tax planning until the end of the year could mean missed opportunities to save money on what amounts to a required expense. For busy organizations to take advantage of tax planning as a financial strategy, the process itself must not add to the existing workload for the office of finance.
To make an impact on your business and achieve a clear and accurate understanding of the company’s tax position, finance teams need to set up planning tools to track tax opportunities throughout the year.
Incorporating taxes into your planning process
Setting up finance tools that will track tax adjustments can be challenging if a company is using something like Excel or another FP&A tool that doesn’t allow the finance team to create new versions of the budget for tracking.
With a tool that does accommodate the creation of a new version, it’s possible to accurately estimate for actual income tax based on profit and spend. This allows for projecting potential tax liabilities before the year’s end.
This kind of visibility also improves intelligent decision making. Decisions that affect tax credits and liabilities can be paced throughout the year and can reflect the impact those choices will have. For advanced financial tools, the addition of a tax version of the budget to what-if scenario planning leaves companies better prepared to address tax liabilities at the end of the year.
Tax planning should be an activity that is managed throughout the year. Using versions in your FP&A tool allows a business to see how choices made impact the company’s year-end tax position. With a sophisticated FP&A tool like Planning Maestro that is configured to track tax adjustments all year long, taxes can be treated like any other business expense — planned for and controlled.
Centage Corporation’s Planning Maestro is a cloud-native planning & analytics platform that delivers year-round financial intelligence and direct integration with Community Brands MIP Fund Accounting software, redefining how Nonprofits budget, forecast, analyze and report. With Planning Maestro, Centage offers the sophisticated features needed by small and mid-market organizations to integrate budgeting, forecasting, and deep data analysis within one easy-to-use, scalable SaaS solution. For more information on how to modernize your office of finance with intelligent planning, view our product demonstration video, or call 800-366-5111.