For small business owners, tax liability often makes the difference between an excellent quarter and an average quarter or a lackluster quarter and a losing quarter. Unlike individuals, businesses need to pay taxes year-round, potentially wreaking havoc on cash flows.
As a small business owner, you know how tough it can be to manage expenses, payroll, and debt during slow seasons and the importance of generating surplus savings when times are good.
This is where a CPA comes into play with keeping your business on track.
In addition, the need to invest in new equipment, other technology, and employees is an ever-present balancing act with competing budgetary requirements. You have to spend money to make money, but generating profits now is often equally important, and positive cash flow is your lifeline.
Thankfully, you can greatly enhance profitability and cash flow through smart tax planning. Your business investments, depreciation, and other deductions can trim your tax liability down to a comfortable size, helping your business prosper and grow in the future.
What Is a Tax Liability?
Tax liability is the money you owe to the federal, state, or local government. Examples include income, employment, capital gains, and past-due tax bills. Falling behind on taxes is one of the worst nightmares for small business owners.
Working with a certified public accountant (CPA) helps you decrease tax liability to the minimal level possible. Though small businesses are required to pay many forms of tax that can seem onerous, tax breaks can cut the bill down to size.
A CPA works to plan business expenses and investments for maximal tax impact while implementing strategies to protect vital income from the tax bite.
How a CPA Can Help Reduce Tax Liability
A CPA can help reduce your tax liability by creating a year-end tax strategy, finding all the write-offs, and advising on benefits versus paychecks.
Creating a Year-End Tax Strategy
Year-end tax planning plays a crucial role in managing taxes. Many small businesses engage in philanthropy, often giving back directly to the community. As a result, many receive the best tax treatment by designating 10% of income to charitable causes.
Find All the Write-Offs
CPAs are invaluable in helping businesses find all the tax write-offs. Often, clients are surprised at the amount of tax benefit they derive from office expenses, environmentally sustainable equipment, furniture, travel, conferences, and other business expenses.
In addition, the federal government offers special tax breaks for trade and employment activities. For instance, small businesses can generate many write-offs by employing union workers and minorities, and manufacturers can gain tax advantages through exporting.
Creating Accountable Plans
Ever notice how accountants are meticulous and detail-oriented? Part of the reason for this is that managing taxes requires extensive record keeping. Without the data needed to figure your taxes in the most favorable light, you could end up paying too much or being unable to justify your return in an audit.
Having records showing the legitimacy of each deduction is essential. If you lack this documentation, the IRS could hit you with painful penalties.
Advising on Benefits Versus Paychecks
While you cannot compensate your employees with benefits alone, raising the proportion of compensation devoted to benefits improves the business’s tax situation. For instance, you could earmark the same amount for medical expenses coverage as an alternative to a salary increase. As a result, you eliminate Medicare, FICA, income, and unemployment taxes on that amount.
Hire a Trustworthy CPA
A trustworthy CPA not only saves you time but also prevents any uncertainty about managing your finances and taxes. In addition, a CPA provides you with tax-busting and revenue-enhancing financial advice.
CPAs handle tax preparation, so you never have to sweat over this hard labor or worry about a deduction biting you back in an audit. But CPAs go beyond that.
A CPA has the knowledge and experience to advise on issues determining your bottom line, including cash flow management, risk assessment, and growth plans. Businesses ultimately succeed or fail based on how well all the financial parts of the enterprise fit together.
Tax planning and preparation involve more than keeping records and filling out forms. It also works in conjunction with the business’s overarching plan, helping you achieve your goals and maintain a prosperous and stable company.
Tax Avenger in Canton Michigan can help with your small business tax and accounting needs. Our trusted reputation shows through our constant and growing referral business. Call and schedule a Free consultation today!