Doing taxes is no fun, but saving money on taxes is different. One appointment with your tax adviser can result in a tax plan that will work for you all year.
Experts remind you not only to focus on taxes that you need to pay each year to the IRS but also to consider additional tax issues that may arise in the future. For example, suppose a main business owner leaves — what effect will that have on succession planning? Will you be able to avoid serious tax and corporate governance issues?
At the beginning of the year, estimate your income and tax liability. Plan how much you intend to reduce or defer. Throughout the year, monitor income and expenses to adjust your plan as needed. And if you're in a seasonal industry, be aware of its particular business cycles.
It's important to let your tax adviser in on all these ruminations. Your tax planner may have ideas about how your business is structured — maybe your firm is an LLC, and changing to a Subchapter S corporation would allow you to partially avoid paying self-employment tax on profits taxable to the individuals. If you're planning proactively, you can make the S corporation election toward the beginning of the year.
But maybe your business is already structured as an S corporation. Then you should be monitoring profits throughout the year. Because S corporations are required to allocate some of their profits to shareholders, you'll need to check your profit statements regularly to make sure your shareholders are getting everything they're entitled to. Make sure you're staying compliant.
Consider discussing these additional tax-planning strategies with your adviser:
Setting up a retirement plan before the end of the year and making a contribution to it.
Reducing taxable income for the year by deferring some billing until the beginning of the next year.
Timing bonus payments and reviewing accounts receivable reports to identify uncollectible accounts that may be written off as bad debts.
Purchasing fixed assets with much more tax certainty and potential for significant tax breaks via the PATH Act. The act permanently extends Section 179 of the Internal Revenue Code to expense certain depreciable business assets instead of subjecting them to normal depreciation schedules, among other juicy provisions such as extending the R&D credit.
Timing is everything when it comes to your tax-planning process — it will alleviate tax season demands and position you to achieve your tax-saving goals.