As we head into the new year, many of us are focused on setting goals and making plans for the coming year. But for business owners, it’s important to take a moment and reflect on how they can set themselves up for success. While the dawn of a new year is an exciting time, it’s also easy to jump into it without considering the unfortunate mistakes others have made in the past.
One important consideration you must make is taxes. You must proactively take stock of your financial situation, ensure that you are keeping up with your tax obligations, and explore ways to save money on your tax bill.
Unfortunately, tax and accounting mistakes are all too common and can be costly in terms of time, money, and stress. In this article, we will highlight seven common mistakes that you should avoid heading into the new year. By being aware of these pitfalls and taking steps to avoid them, you can ensure that your finances are in order and that you are well-positioned for success in the year ahead.
7 Mistakes to Avoid
1. Not looking at the previous year
With all the enthusiasm and energy of a new year, it’s sometimes tempting to completely forget to reflect on the past 12 months. How was your 2022 and has it panned out as you anticipated? What went right, what could have been done better, and are there areas you can work on in the new year? Have you been keeping up with your tax responsibilities?
Even if it’s not a pleasant experience, it’s important to review and reflect on the past year to ensure that you can move forward in the new year with a solid foundation.
So, take some time now to ponder the year that was, identify possible areas of improvement, and craft a strategy that builds on your successes. Looking at your income, spending, customer feedback, and general progress will help you to assess what worked and where you can optimize.
2. Not taking budgeting seriously
The greatest financial misstep you can make is to spend without a budget. It’s essential to plan ahead, anticipate costs, and allocate resources in a meaningful way. A budget ensures that you are investing in the right areas, cutting costs when necessary, and making smart decisions that will drive your business forward.
Without a budget, you may find yourself overspending on projects or simply not investing enough in the right areas. This may jeopardize your cash flow, create serious cash burns, and leave you without the resources necessary to meet your financial obligations and long-term objectives.
By creating a budget, tracking expenses, and analyzing your costs regularly, you can ensure that you are making smart financial decisions and setting yourself up for success in the new year.
3. Not preparing for the year-end now
One of the biggest mistakes taxpayers can make is to wait until the end of the year to start planning for tax season. Many tax benefits and deductions are only available if you plan early which is why you must set up a plan for a smooth accounting year-end process. This proactive approach helps to ensure that you don’t miss out on any incentives, benefits, or deductions that you may be eligible for.
To prepare for the year-end, start by organizing all tax-related documents such as receipts, invoices, and bank statements. Then, review the documents judiciously and identify any potential deductions or tax credits that you may be eligible for.
Identify any tax-saving opportunities such as cash draws, tax-advantaged investments, and retirement savings plans to maximize your tax savings. Also, consider deferring income or expenses if you anticipate a different tax rate in the upcoming year. Finally, consult with a qualified tax planning professional who can help you identify any additional opportunities and incentives to reduce your tax bill.
4. Not managing cash well
Cash management is perhaps one of the leading causes of cash burn in your business. Without proper cash flow management, it’s easy to become overwhelmed and unable to keep up with your bills. This can lead to a snowball effect of missed payments, accumulation of debt, long-term financial instability, and eventual business failure.
To ensure that you are managing cash well, establish a steady budget, analyze expenses regularly, identify ways to improve your cash flow, and set up procedures for tracking cash flow and monitoring financial performance. By taking these steps, you can ensure that your business is able to weather any potential cash flow issues and remain financially stable.
5. Overpaying your taxes
Could you be overpaying your taxes or leaving money on the table? Many individuals and businesses end up paying more tax than is necessary due to inaccurate calculations or a failure to take advantage of all available deductions. It’s important to be aware of all potential tax deductions, credits, and incentives that you may qualify for.
If you’re not certain how to calculate your taxes accurately, consider working with a qualified tax planner who can help you identify potential tax-saving opportunities that you may not be aware of.
6. Not practicing sound fundamentals
Accounting fundamentals are the foundation of any business and must be adhered to in order to maintain financial stability and fiducial responsibility.
This includes the appropriate and timely recording of financial transactions, reconciling bank accounts, maintaining a proper chart of accounts, preparing accurate financial statements, and following Generally Accepted Accounting Principles (GAAP).
You must also ensure that all employee benefits and payroll taxes are properly accounted for and that any inventory is properly valued and accounted for in accordance with industry best practices.
Failing to do so can result in serious financial consequences and can even lead to costly fines and penalties.
7. Not developing a tax strategy
Listen, as a business owner, you really can’t afford to miss out on any potential tax savings. That’s why it’s so important to develop a well-thought-out tax strategy that takes into account all available deductions, credits, and incentives.
Your tax strategy should create an opportunity to manage tax risk, articulate ideas to reduce taxes and identify tax-saving opportunities.
It should optimize the way your business income and personal spending are structured, identify how your business structure affects your income and payroll taxes, outline strategic tax-advantaged investments, and maximize deductions. By developing a sound tax strategy, you can ensure that all of your income is taxed at the most optimal rate possible.
Not Working with a Professional
Taxes can be complex, and the consequences of mistakes can be costly. That’s why it’s important to work with a reputable tax planning professional like Phillips Business Group to ensure that your financials are accurate and up to date.
With their help, you can identify potential tax savings opportunities, develop an effective and customized tax strategy, and successfully navigate the ever-changing legal landscape of tax compliance.
Phillips Business Group is passionate about helping business owners save money on taxes and would love to see if they can save you money heading into the new year. Book a free tax assessment discovery call with us today to get started!
