How to Prepare for Next Tax Season Now: Listing Issues and Questions
After you've checked and double-checked your books and your bank statement, you probably have some idea of what your profits look like, meaning it's time to ask your accountant or tax preparer how much you can expect to be billed based on where your business stands this year.
'Neither the client nor I like surprises,' Conover says. 'The worst thing to do is get all the books closed in February, and tell our clients they owe a lot of taxes because they had this huge profit. Even if they have money in the bank, they're always so surprised.'
According to Bob Fouratt, a managing partner also with The Curchin Group, the number one question you should ask your accountant is: what am I currently not doing that I could be doing to reduce my tax bill?
'It's so much easier to tax plan prior to the close of the year than it is after the close of the year,' Fouratt says. 'Your options become more limited."
As you go through your accounts receivable, you may want to pinpoint what Spiegel calls 'doubtful accounts.' 'Let's say I have $1 million in receivables. Am I going to collect $1 million or am I only going to collect $900,000?' he asks. Ask your accountant if it would be wise for you to set aside money to cover those doubtful accounts.
Another issue you should broach with your accountant is whether or not you should try to spend money on big expenses like equipment, before the end of the year to reduce your profits, thereby reducing your tax bill.
'If you've been putting off buying a printer, because you've been worried about what your financials might look like, but it looks like you'll come out with a profit, it may be time to buy that printer,' Erb says.
On the other hand, Erb warns that you should have some money set aside to cover your tax bill. 'One of the reasons a lot of small business owners get behind in their taxes is because, when the tax bill comes, they haven't budgeted for [it],' she says. Ask your accountant if you should consider putting money aside or taking out a short-term Certificate of Deposit to cover the cost.
Dig Deeper: Smart Questions for Your Accountant
How to Prepare for Next Tax Season Now: Noting Changes in Tax Laws
The answers to many of the questions you pose to your accountant may be dependent on the particular tax laws for that year, so you need to stay as up-to-date as possible on the tax breaks that are available to you that year. Your accountant should be able to inform you.
'If you're going in [to meet your accountant] with some interim numbers to do some tax planning, that's the time to say, ‘What is going on and how is it affecting me?'' Fouratt says.
For instance, 2010 may very well be the right year to make that big purchase. 'Right now, a company can expense up to $250,000 of equipment purchases, as opposed to depreciating it over five, seven, maybe even fifteen years,' Conover explains. 'Take advantage of this expensing. Generally those limits go down to $25,000 if they don't extend them.'
This year business owners will also be subject to the new HIRE Act that passed in March of this year. It offers tax breaks to any employer who hires someone who was unemployed for a certain period of time. It provides an additional tax incentive for employers who keep those employees for at least a year.
In addition to addressing your current options, Fouratt says your accountant should have his or her finger on the pulse of what tax laws may look like in the future. One change Spiegel predicts, due to the current economic climate, is that income tax rates will rise in 2011.
'As a result, you want to accelerate income into 2010 to potentially benefit from the lower tax rate in 2010 versus 2011,' he explains. 'You're going to sell something? You may want to sell it in 2010. You may want to give people a discount to receive the most receivables in 2010.'
Talking over these future tax trends will make you even more informed when you start your P.L.A.N. all over again next June.
Dig Deeper: How to Reduce Your Small Business Tax Bill
