Wednesday, July 23, 2014

Ways to Use Business Taxes to Build a Stronger Company

We're more than half way through 2014: Exactly where does your business stand in relations to taxes?

Last week, a client of mine had an awful revelation when I finalized his tax form and brought to light he owed a lot of money to the IRS. His initial response was to be mad at the ambassador. Even so, upon careful reflection, he declared, "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. Every time there is a sizable shift to your business's bottom line (in either red or black), it's time for a visit to your tax pro. In fact, everyone who operates a small business should take advantage of the mid-year off period to sit down with a tax expert to examine their financial statements as well as potential tax liabilities.

It's much easier to plan and put a strategy in place today than to run around at year end upending pails of water on all the small fires that have been brewing all year.

Here are some suggestions to explore with your tax pro to strengthen your tax situation and preferably keep working capital in your bank account rather than in Uncle Sam's pocket:.

Open a retirement plan.

If you're at long last a few dollars ahead and don't have a retirement fund, now's the time to open one. Here's the bonus: it's deductible!

Speak with a bona fide financial advisor or a representative from your bank to discover what kind of plan best suits your demands.

There are a wide range of vehicles from Individual 401(k) plans to SEP IRAs to PRACTICAL plans that may or may not need you to include employees in the plan.

If a plan necessitates employee participation, do not automatically dismiss it.

Establisheding a retirement plan for your employees could be a meaningful way to give raises that don't require the extra cost of employer paid payroll taxes. Read IRS Publication 560 for more information.

Examine your legal structure.

Take the time to examine 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 especially important to examine entity structure if your business is currently netting more than $100,000 per year.

Keep in mind that if you incorporate, you will now be required to take finances out of the business via payroll rather than simple draws.

There is a lot more paperwork involved under this status, but the tax perks and protection that a corporation offers may prove more beneficial. Always review these alternatives with your legal representative and tax expert before making a decision.

Offer employee benefits.

Staff members are our most significant 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 into IRS Publication 15-B, Guide to Fringe Benefits to learn more on this topic. You will save your money in payroll taxes while you develop a better working environment for your workers.

Purchase furniture and equipment.

The IRS has always rewarded outlays for capital assets by offering the Section 179 Deduction. This unique deduction allows the immediate expensing of capital assets rather than depreciating them over their useful lives. Be advised however. This year, the limit for purchases decreased from $500,000 to $25,000. However, Congress will be looking into extending that threshold probably sometime during fourth quarter. You can start putting money aside for the purchases now.

Perform projections.

Take a good look at your financial reports. Run a profit and loss and contrast it to the previous year profit and loss through June 30. Are there substantial changes? Are you expecting an increase or decrease in sales and/or expenses through the end of the year? It's a simple matter to export your data from QuickBooks into Excel where you can tinker the numbers to figure out what your yearend bottom line will be. Impart that information with your tax pro to find out if you must change your planned tax payments accordingly.

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