The mistake most small business owners make is that they wait until Dec. 1 to take a look at their tax situation for the year. Sure, tax planning can be done at the last second, but why put yourself through the hassle? With that being said, there are things you can do moving forward to ease the end-of-year tax stress.
Don't make business decisions just for the tax breaks: On the previous page we mentioned how you shouldn't make big business purchases you don't need just for the tax break. The same applies when new laws come into play.
In a Forbes article, attorney and longtime financial planner, Steve Parish pointed out how many businesses are scrambling to look smaller in the eyes of the IRS in light of new health care laws. These new laws mandate that companies with more than 50 full-time employees offer health care to their workers and children up to the age of 26. Failure to comply results in penalties for the employer [source: Jones Day].
While it may seem advantageous to keep your company at under 50 employees tax-wise, the reality remains that if more employees bring in more revenue, then forget the tax savings and hire the number of people you really need. If having more employees increases your income, then is it really so bad to be treated as a bigger company?
Plan throughout the year: A good accountant will keep you in the loop all year round so you can adjust for upcoming tax situations. He or she will also be able to advise you on new credits and deductions you can take and old ones that have expired, as well as how to depreciate existing equipment and software [source: Dixon Hughes Goodman].
Accountants will also know how to handle complex tax situations. For example, if you have seasonal workers, on-call employees or student workers an accountant would be able to determine your liability for the employer mandate under new health care laws.
Consider maximizing your own retirement funds. The IRS 401(k) limit for 2014 is $17,500, with a catch-up amount of $5,500 for those over age 50. This money is tax-free until withdrawn.
The truth is tax-planning is a year-round endeavor for businesses. Rather than waiting until the last minute, work with your finances throughout the year.
Author's Note: How Year-end Business Taxes Work
I, for one, never want to play guessing games with my tax situation. That's why I got myself a good accountant. I would much rather prepare throughout the year than wait until the last minute when I can't do much. Furthermore, my accountant is better versed in tax law than I'll ever be.
While getting an accountant may seem like an expense, I assure you they practically pay for themselves. Not just with the tax savings they can get you, but also by giving you newfound time you can use to make more money.
- Dixon Hughes Goodman. "2014 Year-End Tax Planning for Business." Dixon Hughes Goodman Tax Alert. November 2014 (Dec. 11, 2014) http://www.dhgllp.com/res_pubs/2014-Year-End-Tax-Planning-Business.pdf
- Internal Revenue Service. "IRS Releases the "Dirty Dozen" Tax Scams for 2014; Identity Theft, Phone Scams Lead List." June 2014. (Dec. 11, 2014) http://www.irs.gov/pub/irs-pdf/p1.pdf
- Internal Revenue Service. "Topic 506 - Charitable Contributions." June 2014. (Dec. 9, 2014) http://www.irs.gov/taxtopics/tc506.html
- Jones Day. "Deciding Whether to Play or Pay Under the Affordable Care Act." March 2013. (Dec. 11, 2014) http://www.jonesday.com/deciding_whether_to_play_or_pay/
- Nisall, Eric J. Accountant and Owner of Accountlancer. Personal interview. (Dec. 4, 2014) http://www.accountlancer.com
- Parish, Steve. "Four Year-End Tax Planning Mistakes to Avoid." Forbes. Nov. 17 2014. (Dec. 9, 2014) http://www.forbes.com/sites/steveparrish/2014/11/17/4-year-end-business-tax-planning-mistakes-to-avoid/