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December 26, 2014 | 4-minute read (625 words)
In the few remaining weeks of 2014, one of the best moves you can make is to set aside time to plan for tax season. Here’s what you should do now to get ready.
Organize your records.
Start sorting through your documents. Ideally, you have an expense management system and have been tracking your receipts all year long. If that’s not the case, start getting everything together now while you have time to either locate receipts or order duplicates of any that are missing. Time invested now will save you money versus having your accountant or tax professional bill you for the time she spends recreating documentation.
Document your tax deductions.
Claiming all your deductions is low-hanging fruit that unfortunately can get overlooked. This is definitely not an exhaustive list, but here are some commonly overlooked deductions that are particularly valuable for cash-strapped startups.
Accelerate payments and defer income.
If you report on a cash basis, speeding up your payments to suppliers so that you make them in time to meet the December 31st cutoff and conversely delaying income due you (if you can afford to) into the new year will reduce your taxable income.
Review your business structure.
Your choice of legal entity obviously comes down to multiple factors, and the right option for you might change over time. That said, each has trade-offs. C-Corps are important for attracting institutional investors but are subject to double taxation. With S-Corps and partnerships, business earnings will flow through your individual tax return. And partnerships trade simplicity for the risk that you could be personally financially liable for problems that arise with your business.
Hire a tax professional.
Tax compliance is something you absolutely have to get right. The penalties for screw ups are too high for you to just “wing it.” Hiring a trained professional, not your cousin Joe, who’s a whiz with numbers, ensures you’ll have someone whose job it is to know the ins and out of compliance and to accept liability.
Plan for next year.
Will you need to start making quarterly estimated tax payments? Or do you need to adjust the amounts you pay? As you plan for the upcoming year, keep the potential tax implications of your business decisions in mind and work with your tax professional to figure out the best tax strategies.
While I won’t pretend that navigating the U.S. tax code is a cakewalk, these are relatively painless ways to minimize the hassle and frustrations of tax season.
Need tax help? Share your thoughts in the comments
section below or contact Early Growth Financial Services for a free 30-minute financial consultation.
Glenn McCrae is Early Growth Financial Services’ Chief Strategy Officer. He is a CPA, with extensive experience working with early-stage companies. His expertise spans capital raising (from seed stage to IPO), strategic analysis of business opportunities, business development, financial analysis, and corporate governance. He previously held the roles of VP of Finance and CFO in several dynamic organizations including: a non-profit, a real estate firm, and a broker-dealer.
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