April 15 has come and gone. You have filed your 2014 taxes and maybe even received a refund already. Time to relax until January, right?
Wrong! Now is the time to start planning your improved tax strategies for next year.
Use spring and summer not only to plan your next vacation but to plan your tax strategy. A relatively small amount of tax planning now will save you time, money and headaches down the road.
Contact your certified public accountant early
Our accounting firm receives many calls from potential clients in late March and early April, but it is often difficult to coordinate last-minute meetings and plan successful tax strategies in this timeframe.
Call an accountant before year-end and definitely before Feb. 1 to avoid the busy-season rush. Your accountant will appreciate the time allotted for advanced planning, and you will have the luxury of time on your side to gather appropriate financial data and properly plan.
Include your CPA all year
Many small-business owners change their businesses or create new businesses without first checking with their accountant. By the time they have involved the accountant, it can be too late.
One example is creating a new business and selecting the type of entity that will own the assets, incur the debt and conduct operations. There is no one-size-fits-all answer to this situation — the choice can be difficult and the cost associated with selecting the wrong entity type can be substantial.
Planning for entity structure is a vital part of your tax strategy. Partnerships, limited liability corporations, S-corporations and C-corporations have unique benefits and distinct disadvantages. Your accountant will work with you to explain the differences and help you decide what best fits your needs.
Keep accurate, up-to-date records
When it comes to your financial records, there is no truer adage than “garbage in, garbage out.” Waiting until tax time to clean up your books is unwise. You are asking your accountant to do not only your taxes, but to first fix your bookkeeping records, too. This compounds the pain at tax time but also gives you an unclear picture of your company’s cash flow and records throughout the whole year. How well can you know the profitability of your business without clear and timely records?
Make your quarterly tax payments – no excuses
When the immediate demands of payroll, insurance and inventory costs are staring you in the face, it can be easy for small-business owners to postpone paying quarterly taxes. Catching up later on is harder than you think.
Instead, create a separate bank account and automatically move your estimated tax payments aside. Out of sight, out of mind is a good thing in this case. The money will be waiting for you when it’s time to make the payments. It is always easier to split up the estimated taxes than feel the effect of a one-time tax payment for the entire year, and you can avoid unnecessary tax penalties.
No fence sitting
Higher tax rates for 2015 provide motivation to plan now for certain tax strategies. By working with an accountant today, business owners can consider specific tax questions and make decisions that will affect annual tax liabilities. For example, should a business select a charity to support to reduce taxes, and should that deduction be taken now or later? Is there an opportunity to defer income into future years that might be lower tax years or accelerate deductions this year?
A good rule of thumb is to defer income when you can and accelerate deductions and losses. Also, keep a careful eye on interest rates as major changes could affect your cash flow and deduction strategy.
Another decision to strongly consider is whether to lease or buy equipment and make other investments in your business. Fifty percent bonus depreciation is now available for qualified property, and other deductions are likely to be extended for 2015 that might make it appealing to make these investments.
Evaluate your business and personal tax health today. Now is definitely not the time to sit on the fence — make the decisions today on how you will defer income and accelerate deductions for your business.
Scott Taylor, CPA is a shareholder in the tax department with Piercy Bowler Taylor &Kern, the largest locally-owned accounting firm in Las Vegas.