Giving your taxes your full attention just once a year isn’t the best business or individual strategy.
Experts suggest that a year-round approach is better for your finances, unless of course you like paying more in taxes than you must!
Numerous tax experts agree that addressing your tax liability effectively requires planning throughout the year. Those business owners who reap the most benefits consider their taxes year-round, rather than waiting to focus on tax payments just a few weeks before the filing date.
With proper tax planning as part of your wealth strategy, you and your CPA will devise a plan to help you not only make money, but keep it as well. The IRS code is partially written on how to file and pay taxes, yet the majority is written on how to legally reduce taxes. This allows you to make better investment decisions.
A typical small business qualifies for roughly a dozen tax deductions. For example, you may be able to claim deductions on the following:
- Cars operated for business purposes
- Business-related travel and entertainment expenses
- Purchases of office supplies, furniture, equipment, and software programs
- Telephone expenses
- Contributions toward insurance policies, retirement plans, and pension funds
- Home office
- Hiring children
- Cost segregation
It’s surprising how many small businesses never take advantage of these (and other non-listed) deductions, mainly because they suffer from the “tax-planning-happens-but-once-a-year” syndrome. To fully benefit from these deductions, it’s important to maintain your expense records throughout the year.
It’s also important to meet with your CPA on a regular basis to discuss planning and set up proper strategies for your situation. There are advanced tax strategies that can be uncovered when you and your accountant can sit down and review all details.
Your goal should be to reduce your tax liabilities by retaining records of your purchases and determining the proportion of business costs in combined expenses. By monitoring your expenses closely all year, you can analyze each expense for its tax impact as it’s made. Additionally, smart business owners should contemplate three key steps to tax planning:
1. Invest in the most effective tax and accounting record tools for your business. Whether it’s spending a few dollars on journals or tax books with a set of refill sheets to do manual tracking (or utilize excel) or investing in the latest online software applications, you will benefit from more rigorous and accurate recordkeeping.
Sure, the initial investment could be significant, but regular monitoring should facilitate tracking expenses and making advance payments, which will save you money in the long run. This tips goes for both individuals tracking their personal finances and businesses needing an accounting software and remember businesses can deduct these expenses as they are necessary.
2. Determine when you need professional tax tips and planning advice. At times you will be able to justify paying for professional tax services, particularly if you need advice on unclear requirements in tax laws that could be in your favor.
To prevent unnecessary complications and aggravations, you must avoid violating tax laws that may be applicable to your small business. If you are unsure of these laws, using the tools at your disposal, such as current software and online recordkeeping, and complementing those capabilities with professional advice when needed, can help you keep your taxes under control.
You will know when you need help. Our CPA’s and tax preparers are trained to also know when you may require additional planning. When going through your tax information for preparation it’s not a bad idea to ask questions to understand where opportunities lie to save in taxes.
3. Establish year-round tax planning goals. A good tax-planning strategy will help you accomplish some of these goals:
- Reduce the amount of taxable income
- Claim any available tax credits
- Lower your tax rate
- Control the time when taxes must be paid
- Avoid the most common tax-planning mistakes
Plus, a year-end review at the end of your fiscal year or “busy season” can be most effective if you’ve maintained clear records and an understanding of your financial position throughout the year.
When you meet with BGMF CPAs we may recommend monthly, quarterly or annual tax planning sessions to ensure you are taking advantage of every tax saving opportunity available. We set this based on your unique situation and whether you or your business needs planning more often rather than once per year. Waiting until tax filing season may be too late to take advantage of the various tax savings strategies.
Click here to schedule a consultation to learn the best ways to evaluate the impact of taxes throughout the year.