Post-tax season strategies for businesses

Now that tax season is over for your business, it’s a good idea to revisit some of the ways you can make next tax season even better. As a business owner, every penny of your income counts, so you want to optimize your revenue and minimize your expenses and tax liability. Our firm can help you see the big picture of your tax situation as well as give you sound tax planning advice—starting with these tips: 

Think about changing your entity type

How you set up and operate your business can have a big impact on your tax situation and the amount of paperwork you must do. Whether your business is a sole proprietorship, partnership, LLC, S corporation or C corporation, you should review your selection annually to ensure you’re still operating under the best structure for your goals and tax situation. Why? Because over time, the initial reasons for structuring your business a certain way may no longer be applicable, or in your best interest from a tax perspective. There’s no requirement that you stick with the business structure you initially chose, so our firm can help you determine if you need to make changes based on tax advantages.

Always prepare to pay your taxes

Hopefully, this past tax season didn’t hold any unwelcome surprises when it came to your taxes. While employees pay their taxes ahead of time via payroll deductions withheld by their employers, business owners must be disciplined enough to pay estimated tax payments on a quarterly basis. It’s key to avoid the temptation of delaying tax payments to maintain cash liquidity—otherwise you may be subject to IRS penalties and late payment fines. If it’s difficult to make your estimated tax payments on time, contact our firm to help you assess changes to your cash flow. A good way to start is by setting aside the appropriate percentage that you’ll owe from each payment you receive and putting the money in a separate bank account. 

Select the right accounting method

Each small business owner must choose an accounting method for tracking income and revenue. Two of the most common are the cash-based and accrual methods. No matter which method is used, smart business owners strategically adjust their approach, reporting annual income based on cash receipts to reduce end-of-year revenues—especially if they suspect next year’s income could be lower or they anticipate being in a lower tax bracket. In addition, business expenses can be deferred and accelerated in the same way so business owners can take advantage of tax deductions in the way that works best for their business. 

Fund your retirement

As a business owner, one of the smartest ways to lower your taxable income, secure your financial future, and benefit both yourself and your employees is to contribute to an eligible retirement account. Two common retirement account options for small business owners are the 401(K) plan or the Simplified Employee Pension (SEP) plan. 

Plan on PPP loan forgiveness

If your business took advantage of the first round of the Payroll Protection Program (PPP) loans that were offered by the government due to COVID-19, you may be aware that the PPP loan forgiveness amount will not be considered taxable income at the federal level. This could be a significant tax saving for your business this year if you didn’t claim it on your 2020 tax return.

However, there’s no change in the guidance for state and local tax treatment of PPP funds. Therefore, be sure to check with your own state and local tax authorities to learn about these potential tax obligations. If you meet certain eligibility requirements, you may also be eligible to take advantage of this year’s round of PPP funding and exclusion from income taxes. If you need assistance understanding the tax implications of PPP loans or Economic Injury Disaster Loans (EIDL), please contact our office. 

As you can see, there are several potential tax savings available to businesses this tax year. The key is to determine which of them apply to your business and help you avoid paying excessive tax amounts. If you need assistance with tax planning, please let us know. We can review your current business situation and provide guidance on the above issues, as well as other potential tax moves you may wish to consider. 

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