If you’re a small business owner, you know that excess tax bill can interfere with your company’s cash flow. Regardless, forecasting your tax obligation accurately can be challenging, especially when you’re busy running your business. Besides, tax laws change frequently.
Not many people have an idea of the amount to tax they owe until it’s time to pay them. Maybe because they have no bookkeeper or are not sharing relevant information with their bookkeeping professional until a few weeks to tax time.
You may also get hit unexpectedly by your tax bills if you monitor your losses and profits differently from the tax method, or if you’ve deducted some expenses that have to be underwritten for tax purposes.
Whatever your reasons are, if you’re not prepared, your cash flow can experience a crunch that recurs every year. Consolidating tax estimation into your finance management approach can ensure funds flow as expected.
Below are tax planning strategies you should consider:
Comprehend your Tax Responsibilities
Most entrepreneurs often ignore particular types of taxes like the sales and use taxes. If some of your customers are in states you can't access physically, remitting and collecting sales and use taxes in those states could be your responsibility. Additionally, if you purchase products from states that don't fetch sales tax, you will bear the responsibility. This, however, depends on the state.
As a self-employed individual, you might forget to include self-employment tax (Medicare and Social Security tax paid by a recruiter for an average W-2 worker) on top of other income taxes. If you're running a partnership or a sole proprietorship, you pay all of the tax as an employer.
Include Tax Expenses in your Monthly Budget
When running your business, you might get tempted to invest all the available funds to grow it; this means you might not have money when it's time to pay taxes. Hence, causing a cash flow dispute. To save yourself the burden, set aside a certain percentage of your revenue obligations towards taxes in a savings account so you can commit faithfully to the tax expenses and, at the same time, earn interest on the funds.
If you have employees, consider payroll retaining taxes or those sales taxes fetched as trust fund taxes. You are a custodian keeping these funds on others' behalf. Since they're not part of your organization, never consider them yours.
Track your Estimates Regularly
Despite setting aside tax funds faithfully, you can still end up owing the Internal Revenue Service more than budgeted. Are you having a great business year? While it's breathtaking to have a cash flow surprise, estimating your tax charges will help you monitor your projections all year long.
You may have the general knowledge of your tax responsibilities, but things fluctuate so quickly. It would help if you often review your financial statements for a more error-free tax liability prediction. This strategy will rarely catch you off guard.
You can decide to prepare multiple forecasts at different times a year to ensure your forecasted taxes align with the expected income.
Seek the Help of an Outsider
US tax code consists of thousands of pages and changes from time to time, not adding regularly changing states and municipalities' tax statutes.
These changes can be exhausting to keep up with. That's why you need the help of bookkeeping professionals to stay on track. Letting a professional bookkeeper help with your taxes and other financial obligations will improve what you do best-running your company.
Mastering your tax responsibilities and planning saves you money and anxiety when tax is due, but it can disrupt your focus in managing your business.
Custom Bookkeeping & Accounting Solutions is an outsourced full-service bookkeeping organization that offers remote services to small and medium-sized businesses. Our dedication is to provide excellent services and support your business in a useful and timely manner. Schedule a free consultation at (602)828-6619.