Tax season may not be upon us yet, but it’s certainly around the corner. And, as every good accountant worth their salt will tell you, getting ahead of your obligations and doing some early tax planning and preparation will stand you in good stead once reporting time comes around.
Whatever your business structure and reporting requirements there are several steps you can take now to get your small business tax obligations “ducks in a row” to help you maximize your deductions and sail through tax season.
1) Gather Your Records and Check Your Books
Whether you are an independent contractor or growing small business, spend some extra time as the calendar year draws to a close examining your books and records. Make sure everything is accurate and up-to-date, and that records and documentation that help support the numbers in your tax return are clearly organized – this includes old tax forms, expense receipts, bank statements, etc. Read “Bookkeeping Basics for Small Business” to get a better understanding of smart bookkeeping practices.
2) Understand What Deductions Can do For Your Small Business
Now is the time to increase your expenses so that you can maximize your business tax deductions before the end of the year. From stocking up on office equipment; making charitable donations; to paying bills early (utilities, phone bills, etc.) – all these affect your deductible bottom line.
Taking all the deductions you deserve can be a tricky business and, as a small business owner, getting it wrong can be costly. Not least of all when it comes to understanding what business tax deductions you are eligible to claim. Read my earlier post “Tax Deduction 101 for Small Business” to understand the fundamentals of tax deductions. The comprehensive Small Business Expenses and Deductions portal on Business.gov provides a brief overview of expenses that qualify as tax deductions, with links to resources that provide clear guidance on deducting and capitalizing your expenses.
3) If Cash Flow Permits – Defer Income Earned
Depending on your business structure, you may be able to make some inroads to reducing your overall taxable earnings for the current tax year by deferring any payments you receive for services or products rendered during until the first week of January . This will defer your tax owed on this income until April 2011. If you are a sole proprietor, LLC, S Corporation, or in a legal partnership, income deferral can make good sense – especially if you don’t foresee any significant changes to your income tax rates in the new year. If unsure, make sure to check with a professional tax advisor.
However, if you have any doubts about the solvency or future of your clients, don’t defer – collect those payments soon as possible.
4) Understand Your Obligations as an Employer – January and February are Busy Reporting Months
If you have hired employees for the first time, or have used independent contractors in the past year, it’s worth familiarizing yourself with tax reporting obligations and deadlines that will hit early in the new year.