It’s tax planning time. Yeah, I know, you thought you were going to plan your Holidays, you get to do that too but now is the time to plan for tax season. You can’t wait until April 15th.
In fact, if you are a cash basis company you have to do everything by December 31. There is no time to waste. Don’t ruin your Holidays by waiting for the last minute.
If you don’t understand cash basis versus accrual basis please go watch my video on you tube. If you still have questions, please comment below.
If you don’t understand accounting, please take my class “Accounting for Entrepreneurs” or talk to your CPA.
Are you ready for tax season? Let’s get you ready.
First thing to think about: your goals. Tax reduction versus profitability. Every one wants to be profitable and most don’t want to pay taxes. You can’t have 100% of both. If your goal is to zero out the company at the end of the year and show almost no profit, then don’t blame your tax professional when the bank yanks your credit line.
It’s inevitable. Every year, I’ll have a client ask me to zero out the company so the company pays no taxes- yes, they are usually C corps that used to pay 35%. Luckily that tax rate has changed. Yes, if you’re an S Corp or LLC you pay taxes at your personal rate but that can still be a chunk of change.
Step 1: Know your Objective:
There are three things to consider:
- Your end game. If you are hoping to sell the company in the next 3-5 years don’t destroy your profitability. Leave a decent profit on the books or pay most of the profit in your salary.
- Your credit needs. If you need a credit line in tact, and a lot of you do, leave a profit on the books. Especially if you are in a cyclical business and you are dependent upon your credit line at certain times of the year.
- Know your cash flow situation. Some if you are very good at monitoring your cash flow or you have a great controller doing it for you. But a lot of small businesses still don’t have a clue. They look at what’s in the bank account but really don’t know the book balance versus the bank balance and they don’t estimate what is going to come in and go out in December. These are numbers you need to know.
If you need to leave money in the company for cash flow reasons but need to zero out the company, run yourself a bonus payroll, pay the taxes and then loan the company back your net pay. There are a million things to consider which is why you need a good tax person and a good accounting system on your side.
STEP 2: Get your books in order.
Get your books in order, determine what your true goals are, and then hire a tax professional to help you plan properly. There are a variety of ways to go but it all depends on you, your goals and your cash flow situation. This is why you need a good accountant on your side.
Start now and sail through tax season like it’s no big deal. If you plan ahead, tax season won’t be stressful, the cash basis companies won’t ruin your December, It will be very smooth, business as usual.
In order to get your books in order, please download my tax preparation guide. It will walk you through the steps to get your books in order.
Tax Preparation for Small Businesses
Here to smooth sailing through tax season!
Deb
