Many service-based business owners find themselves tearing their hair out in frustration at the beginning of the year when they sit down to go through all their income and expenses from the year before. Preparing for tax deadlines often feels like a speed bump in the way of their business’s progress.
Having a CPA in your corner is so much more powerful than you may realize. Instead of just giving your accountant your books at year-end to file your income tax return, let’s look at some ways you can begin using your accountant for proactive planning and to help you implement a financial strategy that will make your business thrive.
Here are some ways your accountant can help you be proactive in your tax planning:
Take a Look at Your Business Structure
The type of business entity you register your business as can have a huge impact on your financial strategy. Certain tax planning can be implemented based on your business structure. If your accountant is doing tax planning for you and sees another entity type may better serve your service-based business, they could walk you through changing your entity classification with the IRS.
Help You Keep Your Books Organized
If your desire is to use your accountant for proactive tax planning, your business’s books need to be as up-to-date and as organized as possible. Keeping your business transactions up to date allows you to make faster, more informed business decisions.
Your CPA can teach you which buckets to categorize different income and expenses into throughout the year so you never have a huge “Ask My Accountant” category waiting for year-end. They can assist you in creating notes payable liabilities and fixed asset categories for you to keep up with throughout the year as you pay off debt and buy tangible property.
Accountants can help you understand the difference between personal and business expenses, helping you accurately classify those personal expenses as Shareholder Distributions before the end of the year so you have an accurate perception of the business’s actual tax-deductible expenses.
Streamline Your Payment Processes
Accountants are used to working with a plethora of tax and payment software. They have the knowledge of what platforms work well together and which leave some things to be desired. Talk to your accountant about the systems you have in place so they can help you determine which payment and bookkeeping softwares will best support your needs, helping you spend less time fixing your books and more time providing services to your customers.
Assist in Implementing Fringe Benefits for Your Employees
Having employees is often a vital component of owning a service-based business. However, employees are incredibly tax-expensive for your company. Your CPA can discuss your company’s fringe benefit options, including health insurance, retirement plans, and vehicle use that could provide more benefits to your employees with less tax consequences for your business.
Set You Up for Quarterly Estimated Tax Payments
Often as a small business owner, you will be required to pay quarterly estimated tax payments. You really want to use your accountant for proactive tax planning to ensure you calculate and file your quarterly tax payments correctly. They can make sure you are following standard quarterly tax payment rules to minimize the chance of having to pay interest and penalties the following year.
Create Financial Statements and Analyze Your Financial Data
Banks and investment partners may ask you to produce financial statements for them to review. Your CPA can produce these statements for you. Did you know these statements can also be used as a tool to help your CPA implement a financial strategy that will help your business grow?
Having an accountant dive deep into your books and see what is working for your business and what is not can be a game changer for your business. They can determine if your taxes will be higher or lower overall based on the income and expenses on these financial statements.
Keep You Up to Date on New Tax Laws to Help Maximize Your Tax Deductions
There are not enough hours in the day for you to spend the time necessary to learn every new tax law and every current tax deduction available to you as a service-based business. This is where your CPA can be an invaluable resource to you. They can take the time to process and understand tax law and then pinpoint which laws and deductions may benefit your business.
Using your accountant for proactive tax planning can lift a huge burden off service-based business owners. Having your books clean and up to date allows your CPA to assist you in implementing a financial strategy that will help your business reach your short-term and long-term business goals.
Knowing someone you trust is looking out for your company’s best interest will give you the freedom at year-end to continue to work hard during the day for your customers and to sleep well at night with the satisfaction that you are ready for the upcoming tax season.