Get Tax Happy by Making Taxes a Positive Vehicle for Business, Personal Growth, and Happiness

Get Tax Happy by Making Taxes a Positive Vehicle for Business, Personal Growth, and Happiness

Everyone puts off the things they don’t want to do. For business owners, that often means business tax returns. But if you wait until the better end to do your returns, you’ll only end with more stress and unpleasant surprises.

Taking a proactive approach to your business tax returns can pay off in a multitude of ways, including:
  • Avoiding penalties and interest charges
  • Reduced audit risk
  • Financial clarity
  • Now back taxes

Ready to get tax happy? Here’s how:

Don’t Leave It to the Last Minute

If you’re often procrastinating your business taxes, you’re not alone. It’s easy to put off, but before you know it, the deadline is around the corner.

Don’t put off your year-end tax planning. When preparing for the next year, set aside time for tax planning. The earlier you start the process, the easier your taxes will be when the time comes.

The best thing to do is schedule time on your calendar in the weeks leading up to the end of the year. Set notifications on your phone or calendar, block off time and get the work done so you can sit back and relax in the future.

Assess Your Financial Health

Year-end tax planning is an opportunity to evaluate your business’s financial health. Review your income statement, balance sheet, and cash flow statement to see if your business is losing, gaining, or staying the same.

Then, look for the reasons that you may be gaining or losing. You may find that expenses are too high, so you can adjust your budget moving forward to ensure that you start the new year off right. Over time, your financial statements will give you a good idea of your business’s financial health.

Make Business Purchases

Maximizing deductions is a key part of easing your tax burden. If you need items for your business next year, buy them at the end of the year to maximize your deductions.

There are numerous business purchases that you may need, including:
  • Technology like software
  • Computers or printers
  • Office supplies like paper
  • A company vehicle

If no expenses pop up in your mind, think about the items that are getting a bit older or running out. For example, are you working with old computers and printers? Is your supply of paper and folders low?

Defer or Accelerate Income

A great way to reduce your tax liability is to defer your income to next year. The income you receive on December 31 is part of the current year, so you can reduce your tax liability by postponing that income until after January 1.

Deferring your income gives you more time to pay taxes on that business income since it’s technically part of next year’s taxes. Also, if you expect to be in the lower tax bracket for the coming year, you can pay your taxes at a lower rate.

There are different ways to defer your income according to your accounting method. For example, with cash-basis accounting, you can send your invoices later or schedule the due dates for the new year. Because you won’t receive the income until the following year, it won’t count for this year. Only defer income if you do not need the cash, however.

You can also accelerate income to the current year. If your business is booming and you think you’ll be in a higher tax bracket, accelerating your income lets you collect more payments in that year to stay at your current tax rate.

Organize Your Deductions

Before you finish your planning, consider what tax deductions you may be eligible for. Many business owners are eligible for:
  • Home office deductions
  • Travel expenses
  • Employee expenses
  • Business use of a vehicle
  • Charitable contributions

Always follow IRS rules for deductions, however.

Claim Bonus Depreciation

If you’ve purchased equipment, technology, furniture, or vehicles for your business, tax rules may require you to depreciate some of these items from use. Fortunately, you can write those depreciation costs off on your return. Not all assets may qualify for bonus depreciation, so you may want to consult a tax professional.

Establish a Retirement Plan

Whether you have a retirement plan or looking to establish one, the end of the year is the prime time to do it. Contributing to your retirement account can reduce your taxable income. There are several options for business owners, including 401(k), simple IRA, and SEP IRA.

Depending on your plans, you may be able to deduct contributions when you file your taxes.

Keep Organized Records

Record keeping is one of the most important aspects of having an efficient tax season. When your records are in order, you can complete your business taxes quickly with fewer mistakes and less stress.

Businesses use different accounting processes, whether manual tracking with a spreadsheet, relying on an accountant, or using accounting software. If you don’t feel your current method is working the best for you, this is the time to reevaluate your options.

Manual methods are used often because they’re cheap but take time. You can hire an accountant to ensure you have organized books without errors, but that can get expensive quickly. Accounting software is an ideal solution that cost-effectively provides support.

Embrace Predictive Accounting

Predictive accounting helps you manage your taxes to maximize your tax savings and stay organized. You can manage your financial reports, tax payments, bookkeeping, and more, so you can focus on running your business.

With predictive accounting software, you can plan your year-end taxes all year to be tax happy, including paying your estimates, reporting income and expenses, and reporting on popular events. At the end of the year, you won’t have big surprises with your tax bill.

Be Tax Happy!

Most of us don’t like tax time, but taking a proactive approach to your business taxes can significantly reduce your stress when tax season comes around. Instead of being rushed and stressed, plan your taxes throughout the next year and avoid surprises.

Author Bio:

Shahar Plinner

Shahar is a tax and accounting expert with over 20 years of experience in the field. He is an entrepreneur and known as The Tax Guru on the west coast. Shahar moved to Seattle from Israel and founded, scaled, and sold a leading tax and accounting firm in the Seattle Metro area.

Over the years, he served thousands of business owners and perfected the playbook for self-employed tax strategy. That’s why he founded Formations, to make sure the self-employed never overpay on taxes again.
Get Tax Happy by Making Taxes a Positive Vehicle for Business, Personal Growth, and Happiness
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