The Benefits of Year-Round Tax Planning for Businesses
Tax planning is usually associated with the final months of the year — a time when business owners gather receipts, assess their overall tax picture, and try to figure out which tax credits and deductions they’re eligible for.
While hunting down last-minute tax breaks might work to some extent, year-round tax planning offers a wealth of benefits that can enhance a business’s financial health. Whether you’re a small startup or an established mid-sized company, integrating tax planning into your regular financial strategy can lead to better decision-making, improved cash flow and even reduced stress when tax season rolls around.
7 Benefits of Year-Round Tax Planning
#1: Maximize Deductions and Credits
One of the most significant advantages of year-round tax planning is the ability to consistently identify and maximize available tax credits and deductions.
Businesses can take advantage of expense deductions related to office supplies, travel, business loan interest, and even employee benefits, for example. You can catch some of these deductions in an eleventh-hour sweep. However, maintaining accurate records of these expenses throughout the year is crucial to ensure that no valuable deduction goes unclaimed, maximizing your savings.
In addition to deductions, there are numerous tax credits available that can lower your tax liability, such as credits for hiring veterans, energy-efficient investments, or research and development efforts — credits that are much more easily captured with proactive planning rather than an end-of-year rush job.
These credits often require documentation and proactive planning, which makes year-round tax strategizing essential for capturing every potential benefit.
#2: Improve Cash Flow Management
Cash flow is the lifeblood of any business … and poor cash flow management is a leading cause of financial distress for companies.
Year-round tax planning can have a positive impact on cash flow by helping businesses anticipate tax liabilities and avoid unexpected bills during tax season.
By forecasting your tax obligations and setting aside money throughout the year, you can avoid scrambling for funds when tax payments are due. Businesses that wait until the last minute to assess their tax situation may find themselves short on cash, which can force them to take on debt or dip into reserves to cover their tax bill.
In addition, year-round planning allows businesses to take advantage of cash flow management strategies such as deferring income to the following year or accelerating deductible expenses to shift tax obligations.
#3: Make Informed Financial Decisions
Year-round tax planning empowers business owners to make more informed financial decisions. Understanding your current tax situation throughout the year allows you to assess the tax implications of major business moves, such as purchasing equipment, expanding operations or hiring additional employees.
For instance, if you’re considering a significant capital investment, knowing how it will impact your taxes can help you decide whether to move forward with the purchase in the current tax year or delay it until the next. Year-round planning can also help you identify opportunities for tax-efficient investments, such as retirement plans or business expansion efforts.
#4: Increase Savings Through Retirement & Benefits Planning
Speaking of retirement plans: One often-overlooked aspect of year-round tax planning is the opportunity to save through retirement contributions and employee benefits.
Businesses can implement retirement plans, such as 401(k)s or SEP IRAs, that offer tax advantages for both the company and its employees. (For instance, employer contributions are deductible from the employer’s income.)
By planning ahead, you can optimize your retirement contributions, potentially reducing your tax liability. Additionally, employee benefits such as health savings accounts (HSAs) and flexible spending accounts (FSAs) can offer tax advantages while also boosting employee satisfaction and retention.
#5: Adapt to Tax Law Changes
Tax laws are constantly evolving, with new regulations introduced regularly at the federal, state and local levels. Without year-round tax planning, businesses might be caught off guard by changes that impact their tax liabilities. However, by staying engaged in tax planning throughout the year, you can stay informed about relevant tax law changes and adjust your strategy accordingly.
For example, a new tax credit for energy-efficient upgrades or a change in the tax treatment of certain business expenses could provide opportunities to lower your tax bill — but only if you’re aware of the changes in time to take advantage of them.
#6: Reduce the Risk of Errors and Penalties
Tax rules and regulations are complex, and even small mistakes can result in audits, fines or penalties. Rushed year-end tax prep increases the risk of making these costly errors, omissions and miscalculations.
Year-round tax planning, however, reduces this risk by allowing you to work with your accountant to review your financial statements regularly. That way, you can ensure everything is in order well before the tax deadline.
Also, businesses that engage in regular tax planning are more likely to stay compliant with evolving tax laws. Tax codes frequently change, and staying informed about new regulations throughout the year can help you adjust your tax strategies to maintain compliance and avoid penalties.
#7: Avoid Last-Minute Stress
Tax season can be a stressful time for business owners, especially when it’s approached with a last-minute mentality. The pressure to gather documents, review financials and calculate tax liabilities in a short period can lead to anxiety and mistakes.
Year-round tax planning alleviates much of this stress by spreading the workload over the course of the year. Instead of having to cram a lot of work in a short time to meet deadlines, you can tackle tax-related tasks incrementally. This kind of 12-month tax management also ensures everything is in place when tax season arrives.
Start a Smarter Tax Planning Schedule
Business owners — especially those helming small firms — have a lot on their plates, and taxes typically don’t get attention until there’s a need.
But they should.
Year-round tax planning offers numerous advantages, from maximizing deductions and improving cash flow to reducing stress and staying compliant with evolving tax laws. By working with tax specialists at McManamon & Co., small and midsized businesses can ensure they’re taking full advantage of available tax-saving opportunities, making informed financial decisions and ultimately improving their bottom line.
Do you want to look at your taxes differently? Call us at 440.892.8900 or contact us online today.
Tags: accounting, small business, small business accounting, small business taxes, taxes | Posted in McManamon & Co., small business, small business taxes, taxes