The Tax Cuts and Jobs Act passed in late 2017 has brought about over 600 changes to the tax code.
For most taxpayers, this is more than a little overwhelming. For business owners, being smart about taxes is more important than ever.
If you own a business, it’s important to start planning for tax time at the beginning of the tax year. Planning ahead can help you maximize your tax deductions and benefits as well as avoid facing fees and penalties.
Keep reading for some of our top tax planning strategies for business owners to help make tax season a breeze.
1. Hire a Tax Professional
CPA’s are usually more affordable than people think.
They have experience in the tax world far beyond what most business owners do. Even if you think you can do it by yourself, it’s not worth the risk.
CPA’s have seen it all and are the best people to advise you about tax deductions and benefits that you might be eligible for. If you are concerned about the cost of hiring a tax professional, know that you will recoup your investment in additional tax savings.
You also can rest easy knowing that your tax professional will make sure your tax returns are prepared and filed correctly.
2. Don’t Lose Sight of the Business
Too often, small business owners are overwhelmed with tax issues and lose their vision for their business.
For example, businesses might move their operations to an area with tax incentives but fail to realize the additional administration and compliance costs, as well as audit risk. In the end, this can be detrimental to the business itself and cost more than it is saving on taxes.
It’s essential for businesses to develop tax plans that are not only efficient but also are holistic. Tax plans should focus not just on tax incentives and deductions but also on the objectives of the business.
When businesses try on their own to take advantage of tax incentives by participating in business transactions that are not economically substantive, they put themselves in a position where scrutiny by the IRS is likely.
For this reason, it’s absolutely necessary to develop your tax plan with a tax professional.
3. Organize Your Records
This is something to start doing at the beginning of the year to make tax time easier for everybody involved.
You don’t want to wait until your taxes are due to start scrambling to find the records to back up your deduction claims. Keep your books and receipts organized throughout the year.
Start this practice at the beginning of the year to make it a habit that you will stick to. Making sure your books are clean and that you have all necessary supporting documentation at the ready will save you time and money.
You won’t have to file an extension or worry about late filing fees.
You will be able to take advantage of all applicable tax incentives. Finally, you will save money on tax preparation fees.
Using an app to help you organize your records from business-related trips is a great idea.
4. Talk to Your Tax Accountant
One of the easiest ways to prepare for a great tax season is to start communicating with your tax professional ahead of time.
It’s important to be aware of all the deductible expenses that your company will qualify for as soon as possible. Discussing your options with your tax professional will make sure you take advantage of all possible business deductions and minimize your tax liability.
Being knowledgeable about what you can expect will help you keep the right records throughout the year. Don’t forget to claim these deductions when filing your taxes.
5. Prepare to Overpay Your Estimated Taxes
Being able to do this comes down to budgeting properly.
As a business owner, if you are a sole proprietor, you may need to pay estimated taxes throughout the year. If you don’t do this or don’t pay enough, you will face penalties and interest payments at the end of the year, especially if you can’t pay your tax bill.
Once you get into this cycle, it is hard to get out. Stay ahead of this risk by budgeting efficiently for your estimated tax payments and sticking to that budget.
Unfortunately, not all of the money you earn will be yours. Some will be owed to the IRS. Be prepared for this to avoid undue stress and penalties.
6. Estimate Your Cash Flow
You should create an estimate of your business cash flow over the year to help estimate your tax liability, prepare for estimated payments, and estimate the impact of your deductions.
Creating an estimate of your income as well as payments will help you grow your business all year long, aside from being helpful at tax time.
It’s always good to have a picture of the flow of your business. Looking at this at the end of the year can help develop your business and tax strategy going into the next year as well.
More Tax Planning Strategies
These are just a few of the tax planning strategies our team recommends to make sure your business is prepared for tax season.
When you work with a tax professional, he or she will help you develop a personalized tax strategy designed to meet the goals of your specific business.
Don’t take on the tax code by yourself. Leave it to the professionals who have dedicated their careers to helping business be their best.
Contact us today to schedule an appointment.