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How to Save Big Money on Your 2018 Taxes—Part 2

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Taxes are a thorn in just about every entrepreneur’s side. Indeed, taxes are your single biggest business expense. Fortunately, it’s fairly easy to reduce the level of sting taxes cause—all it takes is a little planning and creativity.

And we’re not talking about doing anything illegal. We’re not suggesting you evade paying taxes; that’s a recipe for disaster. Instead, we’re suggesting you do what practically every highly successful business owner does and implement creative strategies to reduce your company’s tax liability to the lowest levels possible.

Last week, we discussed how you can lay the groundwork for your yearly tax strategy by having the right relationship with a qualified financial manager and a tax advisor. Here, we’ll discuss how you can use this foundation to develop and implement creative tax strategies that can save your company big bucks.

Create your tax projections

The next step in saving big on your taxes is to meet monthly with your financial manager and develop a clear system for categorizing your expenses. In order to accomplish this, your financial manager should have a clear grasp of how your business operates and its overall financial status.

To this end, your financial manager should understand all of the ways you earn revenue and the expenses required to fulfill your product and/or service and be able to categorize income and expenses properly. Your financial manager should produce weekly and monthly reports, so you can stay regularly apprised of your company’s financial health.

Each month, when you review your profit-and-loss statement (P&L), you’re looking for variances from the prior month as well as expenses that are improperly categorized or not categorized at all. It’s vital to categorize all expenses properly, so you can measure trends and write off as many deductions as possible against your taxable income.

In late October, your financial manager should send a year-to-date P&L to your tax advisor. Your tax advisor will use that data to create tax projections based on your current earnings versus expenses and how much you expect to bring in over the remainder of the year.

Using these projections, you can put strategies in place to minimize your tax liability. Most of these strategies need to be in place BEFORE year’s end, so make sure you’ve started this process by late November at the latest.

If your tax projections indicate that you’re going to owe money, contact us and ask for our list of year-end tax strategies. And if you haven’t run your tax projections yet because you don’t have a qualified financial manager or tax advisor, we can refer you to the professionals we trust most.

Implement effective tax strategies to save big
Once you have your tax projections ready, you then want to look at whether you’re likely to be in a higher tax bracket this year compared with future years. Determining this will allow you to save on your taxes by managing when you receive your income and pay your expenses.

If you’re likely to be in a higher tax bracket this year than in the future, it makes sense to push taxes off into the year(s) when your tax rate will be lower. Even if your tax bracket will be higher in future years, it still might be worthwhile to push your taxes off to the future. This way, you’ll be able to use those funds, which would otherwise be in the hands of the government.

The question you should ask is: Can I make more money with those funds now than I’d pay in higher taxes by pushing those tax payments off until later?

If you can make more money now, you can decrease this year’s taxes by pushing income into the future and accelerating expenses that you’d otherwise pay next year into this year. You can do that by enrolling clients or selling products now, but giving your customers until next year to pay for those products or services. Or you could ask your vendors if you can prepay for next year’s services this year.

If you’d prefer to pay taxes this year because you’re currently in a significantly lower tax bracket than likely in future years—or have losses that will be expiring to offset your income—you should increase this year’s income. You can generate more revenue now by offering year-end discounts on products and services that may not need to be delivered until next year.

Get the most out of your tax savings
Managing when you receive your income and pay your expenses in this manner can save you big money on your taxes this year. If you’d like more information or guidance about additional ways to save money on your taxes, contact us today.

This article is a service of Katie Charleston. We offer a wide array of business legal services and can help you make the wisest business choices throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule.

The post How to Save Big Money on Your 2018 Taxes—Part 2 appeared first on Katie Charleston Law, PC.


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