The Importance of Corporate Tax Planning

Illumeo Customer Success's Profile

Benjamin Franklin is often credited with saying “nothing is certain in life but death and taxes”.  While this quote has been edited to include all sorts of silly sayings and puns, it can hardly be argued against, especially when it comes to taxes.  Everyone is affected by taxes - they cannot be avoided! There is a myriad of types of taxes affecting individuals and corporate entities. Tax planning is crucial for entities because planning can legally minimize the amount of taxes required to be paid in a year.  The topic is enormous in size, and this post will discuss the basic benefits of corporate tax planning.

Corporate tax planning is important for several reasons: 

  1. Meeting required obligations to the government in a timely manner.  

  2. Minimizing current tax liabilities by avoiding legally triggering tax costs.

  3. Planning strategically for future tax liabilities.

The ultimate goal of corporate tax planning is to arrange a company’s affairs so that it ends up owing the least amount in taxes as possible.  Done properly tax planning is both legal and ethical by realizing the legitimate benefits of the tax law to a company.  

First and foremost to tax planning is contracting with a certified public accountant or tax attorney to assist in making favorable tax decisions.  This initial step is key to maximizing tax benefits. Corporate tax courses are required for those offering professional tax services, whether it is an accountant or an attorney, and they also have the resources at hand to find answers to complicated tax questions.  Accountants can advise on strategies that help reduce debt and, in turn, increase working capital. Accountants and attorneys can navigate management through complicated tax laws.    

Corporate tax planning is key in assuring a company it is meeting its tax obligations in accordance with stated deadlines.  Filing deadlines depend upon the type of corporate entity as well as the year-end date of the entity. C-corporations and S-corporations have different due dates for their annual returns.  Interest and penalties are assessed for late returns. If a corporation operates in a foreign jurisdiction there are likely tax deadlines applicable to that jurisdiction only that cannot be overlooked without incurring extensive penalties and interest.

Corporate tax planning should start at the beginning of forming a corporation.  The type of entity selected can play a huge part in the amount of future tax obligations.  Along with the type of entity, the location of the entity plays into the amount of tax the company will be expected to pay.  The types and amounts of taxation imposed can vary drastically by state and by country. Determining the best accounting method (cash v accrual) can influence both cash flow and tax liability.  

Both short-range and long-range tax planning are important for a corporation.  Short-term planning ensures that particular objectives can be met within a specified time frame, most likely within the tax year.  The long-range planning may not lead to a determined benefit within the current year but is put in place to meet a long-range goal or conclusion.