We’re more than half way through 2014: Where does your firm stand in terms of taxes?
Last week, a client of mine had an ugly surprise when I completed his tax form and divulged he owed a lot of money to the IRS. His primary reaction was to be mad at the messenger. Nonetheless, upon careful reflection, he said, “Well, I should have come to see you last year when my new product took off the way it did. I knew I was making a lot more money.”
He’s correct. Whenever there is a substantial change to your business’s bottom line (in either red or black), it’s time for a trip to your tax expert. In fact, any person who operates a small business should take advantage of the mid-year off period to sit down with a tax professional to look at their financial statements and probable tax liabilities.
It’s far easier to create and put a plan in place now than to run around at year end upending pails of water on all the little fires that have been boiling all year.
Here are some ideas to review with your tax pro to bolster your tax predicament and preferably maintain working capital in your bank account rather than in Uncle Sam’s pocket:.
Start a retirement plan.
If you’re now a few dollars on top and don’t have a retirement fund, now’s the chance to open one. Here’s the perk: it’s deductible!
Speak with a registered financial advisor or a representative from your bank to identify what kind of strategy best suits your needs.
There are a broad range of mechanisms from Individual 401(k) plans to SEP IRAs to PRACTICAL plans that may or may not call for you to include employees in the plan.
If a plan necessitates employee participation, do not automatically dismiss it.
Establishing a retirement plan for your workforces could be a substantial way to give raises that don’t require the additional cost of employer paid payroll taxes. Read IRS Publication 560 for more information.
Analyze your legal structure.
Take the time to evaluate whether or not your company is functioning optimally in its existing entity structure. You may have started out as a sole proprietorship and have outgrown it. It is especially important to analyze entity structure if your business is now netting more than $100,000 per year.
Don’t forget that if you incorporate, you’ll now be required to take finances out of the business via payroll rather than simple draws.
There is a lot more written documents involved under this status, but the tax advantages and security that a corporation offers may prove more beneficial. Always discuss these options with your attorney and tax expert before making a decision.
Offer employee benefits.
Employees are our most significant business asset and should be treated keeping that in mind. There are many employee benefits that are not taxable to either the staff or the company. Check out IRS Publication 15-B, Guide to Fringe Benefits to find out more on this topic. You will save money in payroll taxes while you produce a better working environment for your people.
Purchase furniture and equipment.
The IRS has always recompensed outlays for capital assets by offering the Section 179 Deduction. This unique deduction allows the immediate expensing of capital assets as opposed to depreciating them over their useful lives. Be informed however. This year, the threshold for purchases decreased from $500,000 to $25,000. However, Congress will be considering extending that threshold probably sometime during fourth quarter. You can start putting money aside for the purchases now.
Take a good look at your budgetary reports. Run a profit and loss and contrast it to the prior year gain and loss through June 30. Are there significant changes? Are you preparing for an increase or decrease in sales and/or expenditures through the conclusion of the year? It’s a basic matter to export your data from QuickBooks into Excel wherein you can play with the numbers to establish what your end-of-year bottom line will be. Impart that information with your tax pro to learn if you must change your estimated tax payments accordingly.