Important End of the Year Tax Strategies for Entrepreneurs
For entrepreneurs in all sectors, the end of the year attracts a few must-do tasks in which taxation is included. Your plan for the next business year should be drafted as well as the closure of your books. Most importantly, this period is when most entrepreneurs need to check with their accountants on all tax charges.
Perhaps you need to cut down a few things to ensure a healthy business and tax liability in the next year?
Here’s how to get started on making that end of the year tax evaluation and payment to get a better next year.
1. Review Your Tax Calendar
As an entrepreneur, having a tax calendar allows you to have a foresight of tax deadlines while keeping a track of your tax payments. This tool is often underestimated among young entrepreneurs these days. However, the tax calendar helps you stay in charge of taxes. You should schedule a sit-down with your accountant to review taxes paid and the ones omitted.
Entrepreneurs should keep records and also have proper documentation of tax charges paid and reviewed alongside the tax calendar. When you have each tax type relating to your business, you rarely omit or carry over taxes. Also, with your tax calendar, you can organize relevant documents needed for the payment of the tax not paid before now.
2. Access Your Business Tax Liability
Every business has a tax liability attracted to its operations. In summary, the tax liability is the total amount of tax to be paid. It is as a result of ongoing and applicable tax policies governing a state. Every state has its tax policies for businesses carried out within its jurisdiction. It is paramount that every entrepreneur and the business owner becomes familiar with these tax liabilities and pay them accordingly.
With your tax liability records from that year, you can make better decisions as a business in the preceding years. Entrepreneurs who are creative with this tax strategy end up having their best revenue years from the second quarter. With the estimate of your current tax liability, you can determine the amount that goes back into the business. When you have this information, you can plan better on how to utilize the capital for the next year ahead.
3. Go Through Audits of Accounts
To fully maximize this tax strategy, your business must be up-to-date with proper audits of accounts. Businesses that often have issues with increased tax charges are known to have zero recording and shabby auditing of accounts. Your taxes come solely from the operations and pricing of your business. The governmental policies around taxation are drafted to suit all businesses. This means that each business is only peculiar in its records and audits of accounts.
As the year comes to an end, ensure you go through your business’s audits of accounts to avoid an increase in tax in the coming year. It is advisable that as an entrepreneur, you employ the professional services of an internal auditor to help keep your books in check. Handling the records yourself might lead to bookkeeping errors or accounting mistakes. Also, your auditor gets to cross-check the books with the tax invoice from the coming year.
4. Deferring Taxable Income
To ensure they get reduced tax invoices, small businesses often prefer the cash payment method on their goods and services. With taxable income, the revenue of a business is not estimated until it is received, while expenditures are not subtracted until payment is made.
Entrepreneurs get to explore deferral of taxes into the next year with this method. As a result of this, their businesses get a reduction in taxes to be paid in the coming year. Simply put, by deferring taxable income, businesses get to lower their current tax payment per annum.
5. Utilizing Retirements & Pension Contributions
This is another efficient strategy for your end of the year tax return. Entrepreneurs around the world are now knowledgeable of the importance of creating retirements and pensions accounts for their employees. Before now, there was little or no benefits of retirement and pension contributions to the business. However, businesses do not have to worry about taking from the profits to cover retirement plans.
Employees make these contributions from the beginning of the year, and the weight is lifted off your business. You can now direct a percentage of their annual contributions, tax inclusive to their retirements and pensions after they quit. This tax strategy has saved thousands of companies, including startups millions, on employees’ pensions and retirement plans.
6. Review & Revert Your Business Structure
Depending on how much profit, loss, and tax assigned rounds off, you might need a new business structure at the end of the year. Having a business structure that is not only flexible but also remits lower taxes on your business is what you should look out for.
Not all business structures work perfectly well with small businesses, just as not all business structure types work for all sectors.
If, at the end of the year, after working with your accountant and reviewing the tax calendar for that year, you believe a better business structure suits your business, go for it.
Often, entrepreneurs tend to remain stereotypical when it comes to switching business structures. However, it’s been proven that businesses that adopt better structures after a tax year do better in the preceding years.
Taxation for every business requires a level of commitment and is mostly carried out effectively with the help of a professional accountant and auditor. These tax strategies would help you as an entrepreneur to best evaluate your business year. It will also prepare you ahead to make better choices in the preceding years.