Here Comes the Tax Man – Six Tips to Get Ready for the Big Day

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Should five per cent appear too small
Be thankful I don’t take it all
‘Cause I’m the taxman, yeah I’m the tax man
Tax Man (Beatles, 1966)

Taxes for small businesses

Few people celebrate April 15. No one sits around the table to carve turkeys and watch football. There aren’t any fireworks displays and ice cream socials. Santa Claus doesn’t come down a chimney and leave any presents.

Quite the opposite happens on April 15… that’s when the Tax Man comes and takes away.

We all know taxes are a necessary part of living in a free and democratic society. You don’t get something for nothing, not even in America. Someone has to pay for the roads, the national parks and the aircraft carriers. And that someone is you and me. But with apologies to the Beatles, the Tax Man doesn’t have to take it all. Just because taxes are necessary, that doesn’t mean there aren’t things you can do to lessen your bill when it comes due. 

1) Organization Saves Time… and Often, Money

Here are six helpful tips you may want to consider when preparing your taxes. Of course, Charter Capital is not a tax service and we don’t give tax advice. Consult your tax attorney for information regarding your specific situation.

Believe it or not, throwing receipts and other important documents into a cluttered drawer or file folder and then forgetting about them until April 14 is not a good idea. A better one is to stay organized. Each time you have new receipts or documentation, carefully file them by topic that day rather than waiting for them to pile up. When your tax files are organized, it saves valuable time for the tax preparer (especially if that tax preparer is you). Organized files and complete documentation can also help you better take advantage of eligible tax incentives you may otherwise miss because you can’t find the needed receipts or papers. Finally, it can make tax preparation easier, faster and less frustrating, lessening the possibility of having to file an extension or having to pay late fees because you or your preparer couldn’t complete the task in time.

2) Pick the Right Entity for your Business

Just because you own and operate a small business doesn’t mean you can’t take advantage of an entity change. Big businesses aren’t the only ones with the fancy abbreviations at the end of their names. If you currently file as a sole proprietor, consider switching to an LLC. Doing so may enable you to eliminate some of the self-employment tax and several other benefits.

3) New, Larger Equipment Deductions May Cut Your Tax Bill

Recent tax law changes now offer bigger deductions for equipment purchases. Small businesses are now eligible for federal tax deductions of up to $1 million – nearly twice the previous amount. If you’ve purchased new or used equipment for your business and placed it into service before the end of the year, you may be entitled to this deduction. The new tax laws also offer two additional breaks for small businesses. One is a 100 percent bonus depreciation deduction for certain types of equipment bought and placed into service after Sep. 27, 2017. The other is a 40 percent bonus deduction for certain types of equipment purchased before Sep. 28, 2017 and put into service during 2018. To see if you qualify, check with your tax attorney or the IRS. Speaking of that…

4) Don’t Be Afraid to Ask the IRS for Help

Most people would understandably not be thrilled were an IRS agent come knocking on the door. But, believe it or not, the IRS does try to help taxpayers and offers many tax preparation tools of which you may not be aware. The agency has many self-help topics online here. The site also discusses many of the new tax laws and how they may affect your business here. It would certainly be worth a few moments of research to look over these webpages before starting your taxes. You may find information on deductions that could be of great benefit and savings.

5) Donate Unused Inventory – Clean Out the Warehouse and Cut Your Taxes

One often overlooked and easy to take advantage of deduction is to donate unsold and unused inventory. Donating inventory helps two groups at the same time. First, a charitable organization gets free items to help them in their mission. Second, you save money by no longer having to pay to store the items and you can get a tax break. Do note that donations of good worth more than $500 have stringent reporting rules you must follow.  

6) Procrastination Never Pays Off – Don’t Wait to Start Your Taxes

If you’re the type of person who thinks you work best under a tight deadline, you may be doing yourself a disservice by waiting until the last minute to start preparing your taxes. Unless you use the EZ form (and who does that for a business), filling out tax forms takes time, patience and concentration. If you start late, you may learn to your horror you can’t find a needed document and may not find it on short notice. You also may be more prone to mistakes, such as mathematical errors to forgetting to take advantage of a tax benefit for which you qualify. Finally, you may not be able to finish in time, which could lead to late penalties. The best advice is to follow the Boy Scout motto – Be Prepared – and give yourself plenty of time to do the job… and do it right.

Usually on April 15, you’re the one giving. But for this tax season, here’s something just for you: a bonus tax tip to help you ensure you’re getting the maximum benefit for your buck.

7) Get a Handle on Your Cash Flow to Estimate Your Taxes Ahead of Time

One way to better prepare for taxes is to forecast your cash flow. Doing so allows to estimate taxes ahead of time and anticipate eligible deductions. Build a model of your accounts receivable and accounts payable. Factor in your annual budget and anticipated sales. This will help you not only at tax time, but in developing a forecast you may also find it easier to run your business so that it will grow and prosper.

A good way to improve your cash flow, whether at tax time or any time of the year, is invoice factoring. This method of cash flow recovery allows you to “sell” your accounts receivable invoices to a factoring company. This company pays you upfront for the outstanding invoices by giving you the cash you need today and eliminating the worry and hassle of slow paying collections. This leaves you free to run your business.

Invoice factoring is a convenient alternative to a traditional bank loan or fee-laden online loans and risky crowdfunding. Each of these sources require a long-term contract. Factoring, however, gives you the money you need when you need it with no long-term obligations. You can also get cash quicker through invoice factoring – usually within a day or two.

If you would like to learn more about how invoice factoring works, simply call toll-free 1-877-960-1818 or email clientsupport@charcap.com.

* Although we are pretty much experts in small business finance, Charter Capital does not provide tax or legal advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for tax or legal advice. You should consult your own tax and legal advisors before engaging in any transaction.

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