Besides setting financial goals to grow your business, you also need to manage your financial responsibilities. One way is by ensuring you have a robust year-end tax planning process. Failing to do this, the business will suffer financial and legal consequences.
Small businesses face many big challenges. Some of them include:
- Dependence on few clients
- Maintaining cash flow while paying expenses
- Fatigue due to pressure and overworking
- Dependence on the business founder
- Balancing quality and growth
While these challenges delay the success of the business, poor year end tax planning can kill it. Read on to learn more.
Tips for Year End Tax Planning
Every small business owner must know the requirements for tax planning and reporting. Businesses pay federal income taxes, local taxes, sales taxes, and employment taxes. Any mistakes and the Internal Revenue Service (IRS) will start breathing down your neck.
The IRS looks into false income reporting, accounting irregularities, and improper deductions. Getting it wrong exposes your business to penalties, fines, and fraud charges.
Your goals should be:
- To reduce your taxable income and tax rate
- To take advantage of deductions and credits
Here are some tips to help with your year end tax planning:
Find the Right Tax Software
Tax software is an essential part of your planning. It is cost-efficient and it simplifies the process. It also:
- Outlines the information requirements in the tax code
- Allows for fast and secure e-filing of tax returns
- Speeds up the receiving of refunds
- Ensures tax deductions and credits
- Removes errors and mathematical mistakes
- Transfers federal tax information to state tax returns
- Pulls business data (e.g. payroll) from other software
If you use a tax service bureau like UltimateTax, you also get access to support staff. They will help you with any software issues and answer your tax questions.
Having tax software keeps you prepared. People make the mistake of waiting until tax season to compile their financial data. Get detailed reports of your financial transactions throughout the year.
Hire an Accountant or Tax Consultant
While tax software completes some of the functions of an accountant, hiring one is still a good decision. They prepare payroll data, assist in auditing, review budgets and expenses, compile financial information, and maintain financial software.
Like a tax consultant, an accountant makes sure your small business is tax-compliant. He or she will calculate the various taxes and file the accurate returns.
These professionals know how to get deductions for your business. Some examples include travel, automobile, equipment, and home office deductions.
Another key function is to track annual changes in credits and deductions. Your accountant’s role is to ensure you get the maximum refunds possible. They also keep track of the deadlines for filing deductions and credit forms.
Determine Whether You Will Defer Income
Small businesses can defer their income to reduce their tax liability. They can use different options such as cash-basis accounting and accrual accounting.
Cash-basis involves sending invoices late to delay your income. Thus, the money isn’t available for addition in the tax returns. Accrual involves delaying products and services. That way, you won’t be paid in time for the current year’s taxes.
Get More Tips
It takes a lot of work to succeed as a small business owner. You have to find quick solutions to anything that may delay your success. The tips above are one example.
Visit our website to read more business topics and get great tips.