What is the largest expense that you’ll have as a small business owner?
If you guessed taxes, you’re right!
Income taxes account for a large portion of business expenses. What’s even more shocking though, is that business owners often overpay on their taxes. Each year they spend more money on taxes than they are legally required to pay.
Why does this happen? And how can I keep it from happening to me?
If you’re asking those questions, great! They’re excellent questions stemming from valid concerns about overpaying on one’s taxes and how to save money.
The adage, an ounce of prevention is worth a pound of cure, might come to mind when answering. Most small business owners don’t take a PROACTIVE approach to their taxes. Without the planning (aka prevention), they end up scrambling to file their taxes by the deadlines, not taking time to review and address specific tax issues throughout the year.
If you don’t know what’s happening while it’s happening, you’ll be thrown off guard later. You know, when you see that you’re not receiving a nice refund, or worse, that you’re paying a lot more in taxes than you hoped.
So how can you be proactive and take the right steps to maximize your tax returns?
Working with a financial planner and CPA is an excellent way to start finding opportunities to better your tax outlook. With a strong financial team helping your business, you can start reviewing your tax options. After all, the IRS isn’t going to sit down with you and explain the tax code or what deductions you should be claiming!
Too often small business owners forgo on tax planning and don’t think about taxes until the deadline. After the year has passed, you can’t go back and make better decisions. However, if you meet with your financial team monthly and quarterly to analyze your income and expenses, they can help you take advantage of all that’s legally available.
Let’s be clear—tax planning is not the same as tax evasion! Evasion is concealing income, purposely keeping inadequate records, and making fictitious deductions. It’s not legal and it’s not good business!
Tax planning, however, is an excellent business practice that you should be doing. Numerous strategies exist for small business owners, and with your tax planning team, you can structure an approach to accomplish goals like:
- Lowering the amount of your taxable income
- Moving your tax rate to a lower bracket
- Claiming all available tax credits
- Controlling when your tax must be paid
Part of tax planning includes estimating income over time (think years). Knowing what your approximate income, helps with estimating what your tax bracket will be. This isn’t an exact science, but if you’re a savvy business owner, you’re probably already projecting things like sales revenues and cash flow for other business planning purposes. So why not do this with taxes?
Be PROACTIVE! Plan now with your accounting team so that you can enjoy savings and fewer headaches at the close of the year.