Handing your hard earned money to Uncle Sam come March or April may not be the ideal, but it’s unavoidable. For small business owners especially, it’s tough to fork up the cash when there are so many other things you’d rather do with company profit.
This sense of dread around tax season is only further amplified when you open your mailbox to a letter from the IRS. To pay taxes is one thing, but to make a mistake and end up owing more than you’d bargained for is a whole other headache.
The good news is you can mitigate these situations with thorough tax preparation and planning all year-round. Whether personally or professionally, getting ahead of tax implications long before the money is due helps you spend and save wisely.
As the year continues to unfold, take note of these five instances that might warrant some additional tax planning.
You’ve Received an Inheritance
If you’ve received an inheritance, either in the form of money or property, you may have to pay extra tax at both a state and federal level. The inheritance itself may not be classified as taxable income but depending on where you live and what you do with your inheritance, it may impact what you’re required to report on your federal and state tax returns.
Your Business is Becoming More Profitable
When you’re a business owner caught up in the day-to-day, as long as you’re not losing money, you feel in the clear. This is how the profitability of your business can surprisingly fall under the radar until taxes are due and leave you with an unexpected surprise.
The more profit you make, the more you owe — especially if you’re not proactive with the scorekeeping. Tax planning in conjunction with proper bookkeeping practices helps you manage expectations and maximize deductions when it’s time to pay up.
Major Life Changes Have Taken Place
There are a number of milestone moments in life that come with a tax price tag (or break). These may include the following:
- Major medical expenses
- Getting married
- Getting divorced
- Having children
- Attending college
- Buying a home (or second home — go you!)
- Taking in an elderly parent
You’re Operating a Side Hustle
Lyft, Airbnb, Etsy — all of these businesses have helped to make the concept of side hustling commonplace. And they’ve made it so easy to get started that many pick up the extra cash only to be caught off-guard later by the tax consequences. Here again, you are making more profit and therefore have more to owe.
We’ve said it before and we’ll say it again: your budget is your friend. Keep score and control the story of your numbers.
Tax Laws Have Changed
Let’s face it, tax law is somewhat of a moving target these days. If you’re not keeping an eye on the changes and accounting for them in the management of your financials, you may be in for a surprise once that return is ready for filing. At that point, it’s too late to make any changes.
At Officeheads, we want to ensure that you’re taking advantage of every financial opportunity for both you and your business. From bookkeeping to in-house tax planning and preparation services, let us help you minimize surprises and maximize savings. Contact our team today!