Many small business owners consider tax planning the business equivalent of a root canal. They know it’s both necessary and important to do a tax checkup, but they’re not particularly eager to do it. Given those feelings, which are certainly understandable, it’s easy to see why they might be even more reluctant to do a mid-year tax review.
If anything, though, this kind of review might be even more necessary than they think it is. It also represents a fantastic opportunity to save money and reap additional income.
Given this dichotomy, a brief review seems essential. With that in mind, let’s take a look at some of the issues at hand and the potential opportunities they represent. As we do, you’ll quickly realize that doing a mindset shift about midyear tax reviews is the key to opening the door and increasing your level of financial success.
The Mindset Shift in Tax Planning
Let’s start with the mindset issue. To do this, we’ll ask the simplest possible question: Why should you consider a mid-year tax planning review?
The answer is relatively simple. Look at it this way-what if your CPA told you that a midyear tax review could help you save or make money by implementing any changes in the tax law, lower your estimated tax payments and further organize your finances?
Moreover, what would you say if you knew that communicating the results of that review to your other key business people could help you be even more successful?
There aren’t many business owners who wouldn’t jump all over an opportunity like that, and they’d be right to do it. It’s important to know how the specifics work, though, so let’s review those.
Nailing Down the Tax Planning Specifics
Let’s talk about your tax planner for a moment. CPAs tend to be among the most hurried professionals in the workforce during tax season, but during a mid-year review, they typically have more time to apply their expertise in finance and analysis in ways that can provide amazing benefits.
The process starts by looking back at your first-half performance to see how it will affect both cash flow and tax planning. They’ll also go through your financial statement to find and break down key indicators along the way.
All of that may seem fairly basic, but this process can also identify possible investments in different areas of your business that could help create both tax deductions and further growth.
On top of that, consider the new tax laws. Ugh, right? Not necessarily. You need to know about how changes like a 20 percent business income deduction and 100 percent bonus decisions will affect you.
There are also changes in entertainment expenses and how they can be deducted, some possible shifts in your tax brackets, and legal changes that could result in the state and local income tax deductions.
Once again, your mindset is important in how you approach all these things. They represent the possibility of added income or lower expenses-maybe both-so the time you’ll spend going through them is more than worth it.
Future projections are part of the tax review program, too. A great tax planner will give you accurate, realistic forecasts for projected net income, which will allow you to make retirement plan contributions that will decrease your tax liability during the rest of the year and beyond.
The Tax Savings Question
Most business owners approach any tax review with one simple question: How do I save money on my taxes to better achieve my goals? The question may be simple, but the specifics of the answers you get are critical.
How so? Let’s take an example. If you use a retirement plan that goes beyond a traditional 401K, you may be able to implement plans that allow you to defer as much as $100-400K, depending on your income level and whether or not you co-own your company with your spouse.
If your CPA told you could save as much as 40 percent by not having to pay federal taxes, you’d definitely pay attention.
Anticipating equipment purchases and other large transactions are often part of the plan, too. There are ways to structure these purchases to take advantage of both existing and new laws, and your tax planner can help you do this.
Finally, there’s the matter of reorganizing your quarterly payments. Underpaying can cost you money and draw the attention of the IRS or your state tax agency, so adjusting those amounts halfway through the year is just good business.
The Organization Factor
Lastly, let’s talk about the benefits of getting organized.
Many business owners underestimate the effectiveness of using a mid-year review to get their ducks in a row when it comes to tax planning.
Preparing and organizing documents and knowing your deductions can be invaluable. It can help you make better business decisions and increase your financial success, so make up your mind to take positive action and reap the benefits of a mid-year tax review.
The experts at Phillips Business Group are ready to review your taxes, so your next filing doesn’t bring any unnecessary surprises.