Reducing your tax liabilities to the smallest legal amount possible is easier than you think as a consulting firm owner WHEN your finances are in order.
And if you haven't identified your firm's tax strategy throughout this year, now is the time to think about your financial records and your firm's taxes.
If you wait until December or the 1st of next year, it will be too late!
Therefore in this week's episode, I have provided 3 strategies that will position you to reduce taxes, eliminate tax-time stress and gain financial clarity.
The reason accurate financials are so important regarding taxes is that they position your consulting firm to do three things. 1) comply with federal and state tax laws, 2) prepare your annual business taxes with no stress, and 3) reduce your tax liabilities to the smallest legal amount possible.
And who doesn’t want that?
As a consulting firm owner, there are three things you must do RIGHT NOW to ensure your financials are accurate and your tax liabilities decrease.
- Make sure that all income for the year is classified correctly.
- Many businesses received grants and loans in 2021. Please understand that grants and loans should NOT be classified as business revenue.
- If you make this mistake, you are overstating your income, resulting in a higher tax liability.
- In most cases, a business grant should be classified as "Other Income."
- A business loan will appear on your balance sheet as a liability.
- Make sure ALL expenses are accounted for and correct.
- All expenses that are ordinary and necessary help to reduce your taxable income, and as a result, your tax liability decreases.
- For example, the federal government has specific rules on how much depreciation you can deduct each year on equipment, vehicles, and buildings. Many consultants FORGET to account for depreciation, or they make a mistake in how they deduct it.
- I recommend you gather all of your bank statements for the year, reconcile them or have an accountant reconcile them in your accounting system. Then look for legal and ethical loopholes that you can take advantage of. AND honestly, there are plenty!!
- This is the perfect time to identify your potential tax liability and strategically spend (if needed) to save on taxes.
- Based on your average revenue and expenses, you can easily determine your potential tax liability.
- If you are highly likely, you will owe more in taxes than you plan, review your ordinary and necessary expenses and spend money in those areas.
- For example, have you or are you able to max out your retirement contributions?
- Another example, making a charitable contribution. You can deduct up to 25% of your taxable income.
- What about workshops and classes to improve your team's skills. Now is the time to take them.
Bottom Line: Getting your books up-to-date and accurate will position you to understand and reduce your potential tax liabilities. When it's time to file your taxes, it should be easy and stress-free. You also shouldn't have any surprises!
If you need assistance with creating Tax Ready Financial Records click here to speak with us today.