We’re more than halfway through 2014: Where does your business stand in terms of taxes?
Last week, a client of mine had an ugly surprise when I finished his tax return and disclosed he owed a lot of money to the IRS. His first reaction was to be mad at the messenger. However, upon careful reflection, he stated, “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 right. Whenever there is a substantial change to your business’s bottom line (in either red or black), it’s time for a visit to your tax pro. In fact, anyone who owns a small business should take advantage of the mid-year offseason to sit down with a tax pro to discuss their financial statements and potential tax liabilities.
It’s infinitely easier to strategize 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 brewing all year.
Here are some tips to discuss with your tax pro to improve your tax situation and hopefully keep working capital in your bank account rather than in Uncle Sam’s pocket:
Start a retirement plan. If you’re finally a few bucks ahead and don’t have a retirement fund, now’s the time to start one. Here’s the bonus: it’s deductible!
Consult with a bona fide financial advisor or a representative from your bank to determine what kind of plan best suits your needs. There is a wide range of vehicles from Individual 401(k) plans to SEP IRAs to SIMPLE plans that may or may not require you to include employees in the plan.
If a plan requires employee participation, do not automatically dismiss it. Opening a retirement plan for your employees could be a meaningful 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 your business is operating 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.
Keep in mind that if you incorporate, you will now be required to take money out of the business via payroll rather than simple draws. There is a lot more paperwork involved under this status, but the tax benefits and protection that a corporation offers may prove more beneficial. Always discuss these options with your attorney and tax pro before making a decision.
Provide employee benefits. Employees are our most valuable business asset and should be treated accordingly. There are many employee benefits that are not taxable to either the employee or the business. Check out IRS Publication 15-B, Guide to Fringe Benefits for more information on this topic. You will save money on payroll taxes while you create a happier working environment for your people.
Purchase furniture and equipment. The IRS has always rewarded outlays for capital assets by providing the Section 179 Deduction. This special deduction allows the immediate expensing of capital assets rather than depreciating them over their useful lives. Be warned, however. This year, the threshold for purchases decreased from $500,000 to $25,000. However, Congress will be looking at extending that ceiling probably sometime during the fourth quarter. You can begin putting money aside for the purchases now.
Perform projections. Take a good look at your financial statements. Run a profit and loss and compare it to the prior year profit and loss through June 30. Are there significant changes? Are you anticipating an increase or decrease in sales and/or expenses through the end of the year? It’s a simple matter to export your data from QuickBooks into Excel where you can play with the numbers to determine what your yearend bottom line will be. Share that information with your tax pro to find out if you must adjust your estimated tax payments accordingly.
Bonnie Lee is an Enrolled Agent admitted to practice and representing taxpayers in all 50 states at all levels within the Internal Revenue Service. She is the owner of Taxpertise in Sonoma, Calif., and the author of Entrepreneur Press book, “Taxpertise, The Complete Book of Dirty Little Secrets and Hidden Deductions for Small Business that the IRS Doesn’t Want You to Know.” Her new e-book Taxpertise for the Creative Mind Murder, Mayem, Romance, Comedy and Tax Tips for Artists of all Kinds is available at all major booksellers. Follow Bonnie Lee on Twitter at BLTaxpertise and at Facebook
Original Article Via foxbusiness.com
Bonnie and foxbusiness.com are not associated with Enterprise Insurance Group. Articles are posted for the education of our visitors.
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