Hopefully, you made it through the tax deadline content with the results of your business income tax return. But just because April 17 is in the rear-view mirror, that doesn’t mean you should stop thinking about taxes.
It’s time to consider the current year and your financial situation with an eye to your 2012 income tax liability. Here are some tips to help you get and stayed organized:
Update your books. Business owners need to keep a contemporaneous set of books. If you use accounting software, post transactions daily so you can closely monitor your progress.
It’s easy to maintain an accurate checking account balance by paying bills through your accounting software, entering all deposit information on a regular basis and reconciling your bank accounts. It also makes it easier to check your profit or loss for the year, compare figures to previous years, and keep an eye on cash flow. And if you need to provide a current profit and loss to a lender or someone else, it will be immediately available.
Midyear review of books and tax planning. By June or July you should be considering a tax planning session with your tax pro. At the meeting you should provide a profit and loss and balance sheet, discuss your business plans for the year and comment on any business trends you are noticing that will affect your tax liability for 2012. Your tax pro should be able to work with you to find some creative ways to minimize your tax bill.
Fund a retirement plan. If you do not have one in place already, consider opening a retirement plan not only to defer income taxes, but to provide for your future. Receiving only Social Security benefits is not a viable retirement savings plan. Unless the government acts, the Social Security program is on a course to bankruptcy. For more information consult Retirement Plans for Small Business
Equipment and other capital purchases. These transactions are normally depreciated over the useful life of the asset purchased. However, Section 179 deduction in which the taxpayer is allowed to write off the entire purchase price and bonus depreciation are available to help a business owner minimize his tax liability. Check the rules and regulations in this publication: Depreciating Business Property
Adjust estimated tax payments. Perhaps when you filed your 2011 tax return you were left with a large tax liability or a large refund. Either way, you need to take a close look at how you are calculating your estimated tax payments. Remember that estimates are just that: estimates. So as the year progresses, you need to keep an eye on your bottom line and adjust your estimates accordingly. There’s nothing worse than overpaying when you could better use the funds for cash flow to keep your business alive. Well, maybe there is something worse: underpaying and ending up with a huge liability that you had not planned for.
Employee benefits. Employees are the backbone of a well-run business, and when a business owner adequately rewards his employees he gets loyalty and hard work in return. Not only that, the employer can enjoy a nice tax savings as well. When you add benefits like health insurance, group term life insurance, child care subsidies, and other pre-tax benefits to an employee’s pay, you save money because you are not required to pay the employer’s share of payroll taxes on this form of pay. So rather than just giving a raise to an employee, provide her with a fringe benefit that she will find useful. See Employer's Guide to Fringe Benefits for more information.
Bonnie Lee is an Enrolled Agent admitted to practice and representing taxpayers in all fifty states at all levels within the Internal Revenue Service. She is the owner of Taxpertise in Sonoma, CA 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.” Follow Bonnie Lee on Twitter at BLTaxpertise or Facebook at http://www.facebook.com/taxpertise.bonnielee
Bonnie Lee is an Enrolled Agent admitted to practice and representing taxpayers in all fifty states at all levels within the Internal Revenue Service. She is the owner of Taxpertise in Sonoma, CA 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.” Follow Bonnie Lee on Twitter at BLTaxpertise and at Facebook.