Small business owners deal with tax deadlines year-round, and yet much only work with a tax expert or tax planner for the few months around “tax season”—typically, January through the end of April.
While this may seem like a responsible way to cut your business costs, bringing in a tax professional only once a year means you’re likely missing out on the significant savings that come with having a comprehensive, year-round tax strategy in place.
Businesses that utilize year-round tax planning services are much less likely to make costly mistakes, like taking in a large amount of income toward the end of the year or end up owing money after filing their tax return.
Let’s walk through the top 4 benefits of working with a tax planner year-round.
You’ll approach your taxes strategically, rather than haphazardly
You wouldn’t run your business without a business plan, so shouldn’t you do the same for your taxes?
With a year-round strategy in place, you’ll be better able to anticipate what your tax situation will ultimately look like, in terms of how much you’ll owe and which opportunities for savings you can take advantage of.
For example, if you have year-round tax planning services through a tax planning firm, your accountant or CPA can:
- Review your taxes from the previous year, and identify problems and/or opportunities to be aware of this year
- Offer general financial guidelines to keep you on track every month, quarter, and year
- Help identify opportunities for tax reduction and maximize savings
- Make you aware of any changes to federal or state tax regulations that may impact your business
You’ll greatly reduce tax-related stress
The final quarter can be a harried time for small business owners who wait until then to start their tax planning.
Time spent searching for and organizing your documents, locating missing information, and scrambling to identify deductions last-minute is all time taken away from running your business as effectively and efficiently as you’d like.
Stress doesn’t just hurt you, either. It can also lower employee morale, reduce productivity overall, and, of course, affect your mental, emotional, and physical health.
By staying on top of your tax planning year-round, you’ll be well-prepared once the final filing date does arrive, and avoid the hurry and worry of dealing with a year’s worth of tax decisions at one time.
You’ll prevent expensive mistakes, rather than have to fix them after the fact
An ounce of prevention is worth a pound of cure—in taxes as well as anything else.
If you’re working with a year-round tax planning service, they’ll be able to alert you to any potential issues before they arise.
For example, if you sign a large client in December and accept payment from them that same month, you could find yourself in a difficult situation. If the amount of payment is significant, that could bump you up to the next tax bracket, meaning you’ll owe more in taxes than you planned for during the rest of the year. That’s an unpleasant surprise to have to deal with once tax season arrives.
A tax planner, however, would likely advise you to defer that income, if possible, to avoid the year-end increase. Alternatively, if deferment wasn’t an option and you’d planned on making a large equipment purchase in the new year, you could make that purchase in December to obtain the Section 179 deduction for capital assets. This would help set off the increase in income.
Keep better track of your expenses and budget
Another benefit of working with a tax expert year-round is that you’ll keep better track of your business expenses and budget.
Your tax planner will schedule regular check-ins, whether monthly or quarterly, which will involve going over items including:
- Possible deductions
- Upcoming expenses or income
- Potential tax issues for the year
- Changing regulations
- Investments that can reduce taxable income
- The optimal timing to purchase or sell capital assets
As you prepare for each of these check-ins, you’ll necessarily be tracking your business’s finances, from expense to employee costs to IRA and 401(k) contributions.
This can improve not only your tax situation for the year but also your overall financial management for the business. It will also help you stay on budget and realize when the budget needs adjusting.
You’ll incur significant savings
Most small business owners are not taking advantage of every tax benefit, credit, and deduction available to them.
This is simply a function of working within a highly complex tax system. To optimize your status about taxes, you need the knowledge and guidance of a tax professional who works with companies year-round, not just during tax season.
This has proven especially true since the COVID-19 pandemic struck, ushering in both unprecedented challenges for small businesses, and a wide range of available government grants, loans, and other benefits to help business owners weather the uncertainty.
A knowledgeable tax professional may also be able to help you in this area through relief consulting. If this is offered, he or she should not only be well-versed in how to apply for and obtain these benefits but also how to manage the grant or loan in a way that ensures you’re complying with the terms and reducing any additional tax liability.
Year-round tax planning services can be invaluable for small businesses in any industry. If you’re interested in a consultation, get in touch with our team of tax experts at AG FinTax.