Pulling it all together: How to prepare for tax season now
It might seem a bit too soon with the holidays just around the corner, but now is a great time to think about taxes! A great financial strategy is to identify expenses you can pay for before the end of the year, so that you can reduce your tax liability in 2014.
To do this, our company begins tax projections for our clients in October. We get everyone’s books in order and up to date. This way we can allocate cash for year-end payroll, bonuses, and fourth quarter estimated tax payments.
We then look at the bookkeeping again at the beginning of December. This way we can run interim financial reports to see what our clients’ net income or loss is as of December 1. We then estimate income and expenses for December and send the reports to the CPA to calculate the projected tax liability. If there is still significant profit and you have available cash, you can line up some additional spending before the year’s end.
A good rule of thumb is to pay for any necessary January and February expenses in December if you can. Just be sure to leave the correct amount of cash in the business to fund your payroll, as well as overhead for those two months. Review all of this with your financial advisor and CPA, and make sure to use all retirement savings tools available to you.
This type of early tax planning can enormously help your cash flow, putting you in great shape to kick off the new year! To learn other tax strategies that may help your business, check out this terrific recap of new tax code changes that may impact your 2013 tax return.