Why it’s a good time for a mid-year tax check-up
Talking about taxes at the end of the summer is about as popular as having your alarm wake you up for work on your day off. It’s just wrong, or is it? Tax accounting is a lot like good comedy, it’s all about the timing. With April 15th long past and the end of the year months away, now is the perfect time to visit your accountant. A mid-year tax check-up is a way to make sure you are on track and doing everything you can to keep your tax bill to a minimum.
Your accountant will want to take a look at your income and expenses in comparison to last year. A mid-year check-up is especially important if you need to make quarterly estimated tax payments, which are required if you expect to owe $1,000 or more when your tax return is filed. This rule applies to sole proprietorships, partnerships and S-corporations. Your accountant will have based your estimated payments on last year’s income.
If your income is lower or your expenses higher this year you may be overpaying and loaning the IRS your money interest free. On the other hand, if your business income is higher, you may be underpaying. Underpaid estimates can result in a large tax bill along with penalties and interest. A mid-year check-up will give you a chance to make needed adjustments.
Actionable intelligence about how your sales and billing stack up to your collections on both a year to date basis and a year over year basis will enable you to recognize troublesome patterns before they become a serious issue. Delinquent customers are more likely to be able to make good in mid-year than at year end saving you added collection costs and lost revenue.
Deductions – Expenses – Contributions
Catching numerous small purchases that quickly add up to large deductible expenses before they fall through the cracks can be a significant benefit of a mid-year check-up. Small expenditures are too often easily overlooked and forgotten by year end. Sorting and organizing your expenditures at mid-year lessens the risk of their being misplaced or forgotten in the frenzy of tax season.
An evaluation of the state of your business that reveals a significant increase in revenue gives your accountant the opportunity to make suggestions that can lower your tax burden. One suggestion might be making a large investment in supplies or equipment, maybe even an expansion of your business. Knowing where you stand in the middle of the year offers you more time to plan rather than rushing to make tax advantaged purchases in December. Time can also afford you the opportunity to deduct capital items as ordinary expenses, eliminating the need to depreciate them over several years.
Being a small business owner is not the only hat you wear; you are also an employee who will want to retire someday. Mid-year is the perfect time to look at the state of your contributions to your retirement accounts. Waiting until the end of the year to make contributions or open a plan can leave you short of cash and unable to fund your future this year.