We’re more than half way through 2014: Just where does your corporate stand in regards to taxes?
Last week, a client of mine had an awful bombshell when I completed his tax return and made known he owed a lot of money to the IRS. His initial response was to be mad at the ambassador. Nonetheless, upon careful reflection, he articulated, “Well, I should have come to see you last year when my new product took off the way it did. I knew I was making a lot more money.”
He’s correct. When there is a significant change to your business’s bottom line (in either red or black), it’s time for a trip to your tax guru. In fact, everyone who runs a small business should take advantage of the mid-year off season to sit down with a tax professional to talk about their financial statements and probable tax liabilities.
It’s far easier to strategize and put a plan in place today than to run around at year end upending jugs of water on all the tiny fires that have been brewing all year.
Here are some ideas to go over with your tax pro to upgrade your tax situation and preferably maintain working capital in your bank account rather than in Uncle Sam’s pocket:.
Open a retirement plan.
If you’re now a few dollars on top and really don’t have a retirement fund, now’s the time to create one. Here’s the bonus: it’s deductible!
Consult with a registered financial advisor or a rep from your bank to establish what kind of strategy best suits your needs.
There are a wide range of mechanisms from Individual 401(k) plans to SEP IRAs to SIMPLE plans that may or may not require you to involve employees in the plan.
If a plan demands employee participation, do not rapidly dismiss it.
Starting a retirement plan for your staff members could be a meaningful way to give increases that don’t require the added cost of employer paid payroll taxes. Read IRS Publication 560 for more information.
Evaluate your legal structure.
Take the time to look at whether your business is functioning optimally in its existing entity structure. You may have started out as a sole proprietorship and have grown out of it. It is certainly important to evaluate entity structure if your business is now netting more than $100,000 per year.
Don’t forget that if you incorporate, you will now be required to take resources out of the business via payroll rather than simple draws.
There is a lot more paperwork involved under this status, but the tax advantages and security that a corporation provides may turn out to be more beneficial. Always explore these choices with your legal professional and tax pro before making a decision.
Provide employee benefits.
People are our most precious business asset and should be treated keeping that in mind. There are many employee benefits that are not taxable to either the employee or the company. Look at IRS Publication 15-B, Guide to Fringe Benefits to find out more on this topic. You will save your money in payroll taxes while you create a happier working environment for your people.
Purchase furniture and equipment.
The IRS has always recompensed outlays for capital assets by providing the Section 179 Deduction. This particular deduction enables the immediate expensing of capital assets instead of depreciating them over their useful lives. Be warned however. This year, the threshold for purchases decreased from $500,000 to $25,000. However, Congress will be considering extending that threshold probably sometime during fourth quarter. You can go ahead putting money aside for the purchases now.
Take a close look at your budgetary statements. Run a profit and loss and contrast it to the prior year profit and loss through June 30. Are there substantial changes? Are you anticipating an increase or decrease in sales and/or expenditures through the conclusion of the year? It’s a simple matter to export your data from QuickBooks into Excel where you can tinker the numbers to identify what your end-of-year bottom line will be. Share that data with your tax pro to learn if you must adjust your planned tax payments accordingly.