We all procrastinate, especially when it comes to stressful or cumbersome things like doing taxes. As a business owner with complicated taxes for an LLC or an S corp in California, that procrastination can cost you – literally.
Taking a proactive approach throughout the year is the best way to have a smooth, stress-free tax season, but it takes some work. If you put it off, you’ll only be in the same position year after year.
So, how can you be tax happy? Prepare for your taxes all year long.
If you put off any task related to your taxes, the deadline will creep up on you. You’ll be stressed and rushing, possibly making mistakes that can cost you money and valuable deduction opportunities.
The earlier you start, the easier you can make your taxes during filing season. Ideally, get your tax strategy in place for the next year as the current year comes to a close. If you need more motivation, set notifications in your calendar to remind you to pay attention to important tax-related work.
Evaluate Your Financial Health
Tax planning at the end of the year is a great time to consider your business’s financial health and look for opportunities to improve it. Take a look at your balance sheet, income statement, and cash flow statement to determine if your business is losing, gaining, or neutral.
With a comprehensive view, you can devise strategies to maximize opportunities. For example, if your expenses are too high, you can make changes to your budget to be in a better position in the following year. If you’re gaining, you can look for opportunities to repeat those results.
Make Business Purchases
Maximizing your deductions is one of the main benefits of preparing for your taxes all year. If the end of the year comes around and you need to make business purchases, getting them before the next year will help you get more out of your deductions.
Think about purchases like new computers or software, office supplies, equipment, or a company car. If you don’t need anything, consider if you have equipment or technology that could afford an upgrade.
Defer Or Accelerate Income
The income you have on December 31 counts toward the current tax year. If you can postpone it until January 1, you can reduce your tax liability for the current year to have more time to pay your taxes. It may also help with your tax bracket.
How you defer your income depends on your accounting method. If you use cash-basis accounting, you can schedule your invoices for January to push them into the new year. Keep in mind that this also means you won’t get that income until the following year, so only defer it if you don’t need the cash.
Another option is accelerating income to the current year. If you think you’ll be in a higher tax bracket, accelerating your income allows you to collect more payments to stay at the current tax rate.
Prepare Your Deductions
Deductions require a lot of organization, but you can save a lot on your business taxes and avoid overpaying your taxes. You may be eligible for deductions like:
Employee expenses, such as retirement
- Travel expenses
- Business vehicle expenses
- Home office deductions
- Charitable contributions
The IRS scrutinizes some deductions, so make sure you’re prepared to justify your deductions if you claim them.
Claim Bonus Depreciation
If you’ve made business purchases that include technology, vehicles, or equipment, you may have to depreciate some of them with use according to IRS rules. In return, you can write them off as depreciation on your return. While not every asset will qualify for a bonus depreciation, you can always consult with a tax professional to make sure.
Establish A Retirement Plan
If you have a current retirement plan or you’re planning on providing one for your employees, the end of the year is a good time to set this up. Contributing to retirement can help you reduce your taxable income.
Depending on whether you choose a simple IRA, 401(k), or SEP IRA, you may be able to deduct contributions when you file your taxes.
The secret to a smooth tax season is staying organized throughout the year. You need all your records in order, which will help you get ready for your taxes and access all the information you need quickly and easily.
There are many ways you can handle accounting for your business. Manual methods are common, but they’re not ideal. You can end up with a lot of errors this way. Your other options are accounting software solutions that are tailored to your industry, such as real estate accounting software, or working with a professional accountant.
Of these options, a professional accountant is the most expensive. You also have to track your own documents to provide to your accountant, so it only saves time for the actual filing. With accounting software, you can streamline all your processes to reduce errors and keep your records on track for the upcoming tax season.
Use Predictive Tax Management
Predictive tax management can help you stay on top of your taxes and get the most tax savings possible. You can manage virtually every aspect of your taxes, from your estimated payments to your major events to your financial reports, freeing you to spend more time on your business.
Better yet, predictive tax management supports your year-long strategy for tax season. As your situation develops throughout the year, the software will prepare you for any changes that may affect your taxes. You’ll also pay your estimates as you go, ensuring you won’t have a surprise tax bill.
Start The Year Off Right With Tax Planning
Most business owners dread tax time, but it doesn’t need to be that way. If you prepare all year long, you can reduce your stress, minimize errors, and track all your deductions. Don’t let the next tax season sneak up on you. Start your proactive tax strategy as soon as the current year ends.