As the year comes to an end most business owners are left frantically seeking to sort out their finances. It’s always important for businesses to start preparing for year-end tax planning so that they can be on the right side of the law, reduce their tax bills, and position their business for success in the following year. Below are the guidelines that can assist your business to minimize the challenges involved in the process.
Getting to understand your financial statements
First of all you need to go through your financial report of the year. Make certain the income and expenses that you report to your tax agency are correct and current. This is because failed receipts, un-accounted expenses or records that are too old can pose so many troubles come tax period. This chore can be undertaken conveniently and without fallacies when using Accounting software.
After you’ve sorted out the actual income and expenditure, check how these numbers compare with the budget you have set initially for the year. It will also enable one to spot the potential regions where tax-saving angles could be exploited within the performance context of a business.
What are Deductions and Credits?
Spend some time thinking about which tax deductions and credits are available to your business. Usual examples of expense deductions are office supplies, travel costs, employee expenses and overhead expenses of homes where you perform your business . Tax credits, on the other hand, can mean even more cost savings to the person or business entity. They may comprise research credits or tax credits for energy-use modernization such as construction inducements.
Thus, do not miss your chance to increase your incomes by talking to a tax professional that is aware of all the pitfalls related to the business activity in your area. For instance, dallas tax planning experts are in a position to advance information specific to local tax law.
Update Payroll Records
It is advisable for you to review your payroll system before the end of the year. Ensure that entered employee information is correct especially the field for Social Security numbers and address since this information is required when generating forms W-2. Moreover, verify if there are arrears in the tax withholding and make sure that it has been done appropriately the whole year through to avoid penalties or counterpart.
For contractors that you have worked with, prepare 1099 for each individual that has a gross income of $600 or more. It is very beneficial to be proactive in this step because it helps your business not to be penalized for filing late or having wrong information.
Outline for State-Specific Tax Issue
State tax laws are particularly important when planning for the end of the year for businesses with branches in different states involved. Some states like Texas and California have very different systems of taxation. Despite the absence of the state income taxes in Texas, California taxes are some of the highest within the United States. Studying Texas vs California taxes will enable you to conduct the best planning as per the location where the company has its grounds.
Assess Pension Payments
Employees also consider contributing to their retirement plans as a way of lowering taxable income while making their workers gain. If you are a business person, check that all 401(k) or such type of retirement plans are over funded before the close of the year. Another option which a business owner can consider is establishing the SEP IRA or the solo 401(k) if he or she is self-employed.
These contributions not only help to minimize the taxable income but also prove you are caring about your employees, and your employees would like to stay more in your company.
Conduct Year End Stock Verification
For businesses that use physical inventory* A critical part of taxation involves tracking the inventory. Inventory taken at the close of the financial year helps confirm whether what is in the records corresponds to reality. It also assists in determining which items of stock are no longer circulating or moving as fast as they should do, which might be Tax deductions or write-off items.
It is important to note that any kind of variation from the inventory results to the actual situation could cost heavily in penalties and so accurate inventory reporting is vital.
Organize Necessary Documents
Get all necessary papers collected in time before the time of filing taxes approach. This is usually composed of receipts, invoices, payroll records and or prior year returns. Since all resources are going to be at the school, there will not be any hassles towards the fag end of preparation.
It is also time to take a fresh look at policies concerning document retention. Pretend to at least save your financial statements for seven years for both needed compliance with the IRS and protection of your ventures.
Consult a Tax Professional
No business organization is completely safe from professional advice. Tax advisers can have very acute perceptions on the so to say ??traps’ and additional aspects on how to minimize the taxes you will be paying. For instance, reaching out to a dallas tax planning specialist will give you the chance to get methods that are more specific to the area of operation of your business.
Tax laws which govern the computation of taxes are often subjected to change and the ever-growing list of changes can sometimes be quite demanding. Schacter asserted that a professional can help your company stay out of trouble while getting the most bang for its buck.
Tax Planning for the next Year
Last but not the least, do not forget to take it as the chance to plan for the next year when doing your preparation for tax returns. Overall it is important to review what lessons have been learned in this year’s process, and to establish what could be done better. Whether it’s upgrading your bookkeeping, researching tax sheltered accounts or modifying the legal structure of the business, planning ahead can help make next year even easier.
Conclusion
Tax planning need not be a desperate affair during the end of the year. With the right filing system, knowledge of the tax laws in your state and professional advice your business is going to be set right. Arguably, it will help to deny the everyday tax burden and, thus, to minimize the problems which come combined with the preparation to the new fiscal year, as well as to give the understanding of the future financial condition of the business.
