Tax planning is essential to small businesses and should be an ongoing, year-round activity. Tax planning is the process of determining which tax strategies should be used to lower both the company’s and the owner’s tax obligation while at the same time enhancing the growth, performance, and profitability of the firm.
I didn’t say tax planning is "paying as little in taxes as possible" because this strategy is generally not the most prudent choice for small businesses. If you want to secure financing or are in an industry that requires bonding (a guarantee from an insurance company that your firm will complete a contract or project), you will need to demonstrate that your firm is profitable and has a certain net worth.
I was once the CFO of a construction company that had the ability to bond $20 million in work (have contracts signed to perform up to $20 million of work at any given time). I would regularly receive guidance from the bonding company regarding the income and net worth the construction company would need to demonstrate at the end of the year. I would then discuss with the owner the tax strategies that could be used to lower the tax burden of the company yet also fulfill the financial standing required by the bonding company. It’s important to balance these sometimes conflicting needs.