April has come and gone—and so too have our thoughts of taxes. For many entrepreneurs, tax time happily comes just once a year. But that’s not really true. For entrepreneurs, staying on top of your taxes is a year-long activity. Or at least it should be…
That may sound grueling, but in fact it’s the opposite: if you stay on top of your taxes throughout the year, come tax time, you won’t have to do the eleventh hour entrepreneur scramble.
Summer is the perfect time to do a mid-year tax review. Anything you can do now and get in order, as relates to your taxes, is time saved at the end of the year. Here are 7 steps to proactively take control of your taxes mid-year:
1. Schedule an appointment with a tax professional. This is the most important thing you can do for yourself and your business right now. A mid-year appointment is a great time to discuss your current financial state and possible ways to save money on taxes come next year. Poor CPAs are so lonely most of the year! Why wait until tax time to pay your tax advisor a visit?
2. Review estimated tax payments. Mid-year is a great time to assess how much your startup has earned year-to-date and to reforecast for the remainder of the year. Your financial projections will help you to confirm or adjust your remaining two estimated tax payments for the year so that you’re not over- or under-paying.
Contact Early Growth Financial Services for help with financial projections.
3. Assess your business entity. Is your company still a sole proprietorship or partnership? If so and your company (and revenue) have grown, it may be time to incorporate your business or form an LLC. Doing so could save you money on taxes. This is one of those items you’ll want to discuss with your tax professional.
4. Track expenses and document receipts. If you’ve been a bit negligent in this area this year, here’s your chance to catch up before that mountain of receipts threatens to take over your office. Read my previous article on Keeping Track of Your Startup Expenses for tips on how to tackle this onerous task.
5. Consider ways to reduce your tax liability. If you recognize your revenue/expenses at the time they are received/spent, you are using the cash-basis accounting method. To reduce your tax liability, you may want to consider ways to push out collections or spend some of your cash reserves. Appropriate timing of payables and receivables can work for you, tax-wise.
If, on the other hand, you recognize income/expenses when revenue/liabilities are incurred, you are employing the accrual accounting method. To reduce your tax liability in this case, you may want to time significant cash outlays accordingly (i.e. schedule those outlays for a prior period). For example, you may want to purchase fixed assets at this time, rather than waiting until next year.
6. Get up-to-date with contractor W-9s. In a perfect world, you are already on top of your W-9s, having one for each and every one of your contractors before they start working for your company. Unfortunately this isn’t always the case in the real world. So review all of your contractor agreements from the beginning of the year to the present date to confirm that you have W-9s for all of them.
7. Contribute to your retirement plan. Making contributions to a retirement plan can offer entrepreneurs some significant tax breaks. If you don’t yet have a retirement plan for your small business, now is the time to look into it. Many business owners make the mistake of waiting until the end of the year to contribute. This means that you could be losing out on potential stock market gains and it also may limit the amount that you are able to contribute, if you can’t come up with a large enough amount under the gun.
This isn’t exactly a comprehensive list, but it’s a start. Your tax professional may have other advice for you as well. Consider this just a friendly reminder that the year is going by fast and that a mid-year tax review could save you a lot of money and hassle when the May flowers are gone and the weather has turned cold.
How do you plan to get on top of your tax situation this summer? Let us know in comments below or contact Early Growth Financial Services for finance and tax support.
David Ehrenberg is the founder and CEO of Early Growth Financial Services, a financial services firm providing a complete suite of financial and accounting services to companies at every stage of the development process. He’s a financial expert and startup mentor, whose passion is helping businesses focus on what they do best. Follow David @EarlyGrowthFS.