When you run a small business, every penny counts. A 2% discount from a supplier can add up to thousands of dollars in profits over a couple of years, for example. Planning ahead for your taxes can also make a huge difference. If you get all of your ducks in a row and get organized about your business’ tax situation, you’ll pay considerably less in taxes and have more money to grow your business.
Here are some things you should be doing on a proactive basis to squeeze the most from your tax return:
Talk with a tax professional long before tax time.
If you want to get the most from your tax situation, you need to operate your business in such a way as to take the best advantage of tax rules. Talking with your tax professional periodically through the year can save you both money and time when it comes time to file your taxes. Depending on your business this can be as simple as an hour or two of consultation each quarter, or it may require more frequent or more in-depth meetings.
Keep your books updated.
One of the most common frustrations small business owners face is catching up several months’ worth of bookkeeping when it’s time to file your taxes. This sort of practice will not only cause you frustration when it’s time to file, it could be costing you money today.
By keeping on top of your books, you’ll know exactly how your business is faring. You can look at specific business components and know whether they’re profitable or whether there may be room for improvement.
Implement a system for recording and organizing expenses.
A number of the most popular accounting software packages now allow you to scan documents and attach them to transactions in your accounting system. Even if you’re not willing or able to go that far, you can organize a system of keeping and tracking all of your expenses.
You need to do more than toss all of the receipts you think might be relevant in a shoebox; you need to begin categorizing various expenditures during the year. This will not only greatly reduce your frustration at tax time, but it will also put you in a better position at year-end to maximize tax savings by making certain purchases.
The tax landscape is constantly changing. You don’t need to be an expert on every piece of tax legislation that comes through, but you should try to keep up with current trends. One of the ways you can do this we’ve already discussed: regularly meeting with your tax advisor. However, simply keeping current in business news will help in this regard, as well.
Thoroughly review your situation in December.
If you wait until tax time to actually start figuring out where you’re at, you’re losing plenty of opportunities for tax savings. Chances are pretty good that there are some tax credits or deductions that you haven’t yet take advantage of that will reduce your tax burden.
This can be a little bit tricky, of course. If your books aren’t updated or if you’ve not been working with a tax professional, it’s more of a guessing game. However, if you’re on top of your bookkeeping, you should be able to identify some potential areas of additional tax savings.
Know when to change your business structure.
For businesses first starting out, a sole proprietorship or a partnership are the most frequently used entity structure to hold your business. However, if you’re interested in reducing your personal liability from business failure or events, and most importantly reducing your tax, you’ll want to evaluate other business entities to help you accomplish your goals.
These are important decisions that go beyond tax planning, of course; however, they have significant impact on how your taxes will work. Talk with your tax expert about your business structure, and know when it’s time to change.
You’ve got two options when it comes to your taxes: you can hold your breath all year and hope that your tax burden isn’t going to put you out of business, or you can keep on top of things and make a proactive tax plan. These six steps will put you on that path, help you keep your business running, and save you money at tax time.