The anxiety that surrounds gathering your business records for tax time passed months ago, but a mid-year review is the surest way to avert this headache next year.
A review accomplishes more than easing the tax work for your accountant and minimizing the bill. It also ensures that important tax details are not overlooked, and that you have time to act on valuable tax benefits.
Of course, tax planning is only possible before year-end. It’s important to execute strategies to reduce your tax burden now, instead of finding out next year what you could have done differently this year.
For example, if you’re working toward closing some large accounts by year-end, you may need to acquire certain big-ticket equipment. Whether you make these purchases this year or wait until next year can have a substantial tax impact. Your accountant can help you identify now whether the maximum write-off would be most applicable for this year or whether you should wait until next year to add assets like expensive equipment.
Waiting to organize your out-of-pocket expenditures after year-end means you may miss sending some of your tax-deductible business expenses to your accountant. This is a mistake commonly made by solo entrepreneurs experiencing rapid growth.
When your business is expanding, you’re probably spending more time meeting with customers and vendors, and possibly even traveling. The result is a pile of receipts for business meals and travel. Don’t wait until next year to organize them.
By then, many receipts may have disappeared…along with your memory of what they were for. Invest in a scanning system that categorizes receipts by type of expenditure.
For instance, all meals should be grouped together, including those occurring during business travel. Before scanning, write on each receipt whether or not it’s a travel meal. If it was for a local business meeting, be sure to note who your lunch or dinner companion was and the name of his or her company.
Many retirement plans allow tax-deductible contributions for this year to occur before the tax return due date next year. But profit-sharing plans that allow the highest maximum contribution levels must be established right now, before year-end. Moreover, if your small business is incorporated and pays you a salary, the contributions made to a retirement plan via payroll deduction will affect this year’s paychecks.
If your operation is not incorporated, maybe it should be. That requires an assessment of how much money your venture will earn this year. Many solo businesses or two-person partnerships would make significant tax savings by incorporating.
However, your accountant can only quantify the advantages of a corporate structure when he or she has a complete picture of your finances.
Find out now how much taxable income your business is generating and whether operating as a corporation this year could sizably reduce your tax liability.
Leisure summer days certainly seem more enticing than tackling administrative business matters, but if you want to enjoy non-stressful tax preparation later, you need that mid-year assessment now.