- Paying taxes is unavoidable.
If you don't properly handle taxes,
you could run into big financial issues.
If you plan taxes well, you can save a lot of money.
Know the taxes you have to pay, like federal, state,
local, employment, and commercial activity taxes.
Once you know what you need to pay,
find out the reporting and payment requirements.
Seek counsel from a good accountant
who can help you understand what can be
a very complex topic.
You'll need the right information to be able
to file tax reports on time.
Ensure your accounting software and record keeping
are up to the task of gathering and storing
your tax information.
In many cases, you'll need supporting documentation
like receipts, canceled checks and bank statements
to support the financial results you report
to the tax agencies.
You'll also need to properly reserve and pay your taxes
as required.
This may mean making quarterly tax payments.
When I first started my consulting firm,
what I learned was I needed to set that money aside.
I got some great guidance from an accounting friend
who told me to set up a separate savings account
and every client payment I received,
I was to take a portion of that payment
and put it in the savings account.
When it came time to pay the quarterly taxes,
the money was already set aside.
It made my tax planning very easy.
Your accounting method, whether it's reporting
on a cash basis or an accrual basis,
will impact the timing of your taxes
and reporting requirements.
For cash basis accounting, you record the income
or expense when the cash comes in or goes out.
That impacts the timing of the taxes
related to that item too.
For accrual accounting, you record the income or expense
when the work is delivered or received.
The timing of the cash payment isn't relevant.
Knowing how your accounting and taxes work
can save you money.
If you know you're going to be at a higher tax rate
this year and a lower tax rate next year,
you might accelerate some expenses to reduce your income
this year.
Tax strategies this require careful planning
and an understanding of tax regulations and laws.
Again, consult with an accountant to make sure
you get this right.
You can't afford to get it wrong.
Taxes are a complex cost of doing business.
Retain a good accountant to help you navigate these waters
and keep you out of trouble with the government.
Effective tax planning can actually be a great source
of value for you.