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.
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 expenses
- Purchases of office supplies, furniture, equipment, and software programs
- Telephone expenses
- Contributions toward insurance policies, retirement plans, and pension funds
It’s surprising how many small businesses never take advantage of these 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.
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 record tools for your business. Whether it’s spending roughly $30 on journals and tax books with a set of refill sheets costing less than $10 to do manual bookkeeping or investing up to $2,000 on the latest financial management 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.
2. Stay in touch with financial professionals for tax tips and planning advice. You may frequently 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, use the tools at your disposal, such as current software and online recordkeeping. Complement those capabilities with professional advice when needed to keep your taxes under control.
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.
Not all deductions are available in all situations, and rules change frequently. Contact us at 703-218-3600 or click here to discuss which deductions apply to your company. To review our business planning articles, click here. To review our tax news articles, click here. To learn more about MCB’s tax practice and our tax experts, click here.