As a bookkeeper, I always recommend to my clients that they meet with their tax planner at least one time a year, and better yet two. I usually suggest once around mid-year, and once in the last quarter. The purpose is to review the business and personal information and make any adjustments as necessary.
Tax planning is a strategic approach to making sure you’re taking all the deductions you can to take full advantage of each tax-saving opportunity. This can include determining when best to invest in new equipment, deferring income to pay tax later, maximizing deductions, and determining how much of reasonable salary officers should be paid from the entity to meet IRS requirements for compensation.
Your CPA will need to know your income year to date, new asset purchases and liabilities incurred, other income sources, if you operate from a home office, and more. Take with you a current income statement (profit and loss) and balance sheet as well as any personal information that would affect your tax return such as mortgage information, dependents and allowable deductions, and any other sources of income such as investments and/or income from W2 wages for yourself or spouse if applicable.
Going to see your CPA before December allows any necessary changes to be made prior to the end of the year. Do you need to increase your estimated tax payment so you don’t owe a large amount on your tax return (business was more profitable than expected) or withhold it through payroll? What equipment (if any) will be depreciated and how much will that affect your income? Should you buy or sell investments?
You must know what your expected income, and therefore tax liability, will be before the end of the year. And realize that what you have in the bank doesn’t mean that is what your profit is in the business. When taking a draw or distribution out of the business, the cash is spent, but the profit remains. Be prepared to pay tax on this amount. This is one area that often surprises entrepreneurs. Talking to your tax preparer and reviewing all information will prevent surprises.
So I encourage you to call your CPA and schedule an appointment to go over all of your financial information. You’ll be glad you did!
