Question

Tax planning is the process of looking at the available tax options in order to determine how the Company can conduct the business transactions so that taxes are eliminated or reduced. All business decisions today have tax implications and it is important for a company to manage its income tax requirements efficiently. Task(s) assigned:

1.Discuss the methods available for the businesses to save taxes. Clearly discuss those ways with adequate level of research and provide your views with relevant examples where necessary.

2.Critically discuss all the financing methods available by providing examples to support your discussion. Subsequently, suggest the best financing method from the tax perspectives.

Answer 1

1. Business Owners can Hire their family members infact their children also. By doing so, their marginal Tax Rates reduces as they do not need to pay social security and medicare taxes and even more it may also able to put aside retirement savings for them.

Business Owners can opt for Retirement Plans, For example it can save upto $57000 by opting one participant 401(k) plan. Also there are some other plans which can be taken for tax savings.

Another option can be Putting aside a portion for healthcare needs. This can be done through HSA (Health Saving Account). Opting this, Taxes as well as Potential medical costs can be reduced.

One can be Travelling Expenses Deduction. Business Travelling Expenses are fully deductible for Income Tax Purposes. Business Owners can also combine their personal travel with it but it should be having some business purpose.

Taxes can also be reduced by changing the Business Structure like in llc cases there are some situations where Taxes can get eliminated also.

So by wise plannig you can reduce your Taxes.

2. Financing Options includes majorly Equity Financing and Debt Financing. Others may include Financing through Preference share capital, capital markets as well.

Financing through Equity always taken be as Expensive as You cannot take the tax Benefit with it. Also Stock Market is more Volatile than Bond Market.

Whereas Financing through Debt may comes up with some problems such as more debt = more risk of default and high interest rates.

Therefore the Best one should be the Optimal Mix of all these. It will minimize the Overall Cost of Capital (WACC)