Critical business tax decisions are made every year. Many businesses make decisions at the wrong time of the year and without a tax plan. This could cost them thousands of dollars!
When do you tax plan for your business? Do you think about your tax situation sometime around March or April? Did you know that this may cause you to miss out on critical tax deductions and credits? This is because by January 1st the tax year is already complete. Most decisions businesses make after January 1st will not have a tax benefit until the following tax year.
Are you also making tax decisions for your business without considering the financial repercussions? Businesses should plan for tax deductions and credits before December 31st. They also should consider more than just tax deductions.
I once had a client that read an article that stated businesses should buy large SUV’s before the end of the year in order to maximize their tax deduction through depreciation. They proceeded to buy the SUV in December and then notify our office about the purchase in March. The only problem with this situation was that the client did not have a large gain that year and did not owe any tax. The end result was that they spent money on a vehicle their business did not need in order to receive a tax deduction they could not use or need. While the article they read may have been accurate, it did not apply to their situation. This could have been avoided with simple planning prior to December 31st.
In another situation, I had a client that decided they needed a $30k piece of equipment for their business. Since they had a large gain for the year and they truly had a need for the equipment, they decided to lease the item on December 15th. Unfortunately they made a mistake on leasing the equipment as opposed to purchasing it. Because of IRS rules, the lease payment was only deductible for the amount that was actually paid for in December! Even if they made extra payments, they only could deduct the December payment. This is another situation where tax planning could have helped our client avoid a bad business decision.
Businesses have a lot of decisions to make throughout the year, but as the end of the year approaches these decisions become more and more critical. What items should be bought, what and how expenses should be paid, when to sell assets, whether to collect on outstanding invoices and much more are all decisions that must be made before the end of the tax year.
As you can see, without proper planning a business can make serious mistakes that could cost them tax deductions or credits. Some of these decisions may also cost business owners the business itself. December 31st is rapidly approaching; if you’re a business owner, be sure to plan now on what financial decisions need to be made.
For a free consultation that takes into account your situation, contact Listo Tax Solutions today.