Like most other business owners, you are probably preparing for the year-end right now, or at least starting to think about it. With the end of 2017 quickly approaching, I think it’s time for us to talk about the one thing that makes most owners uncomfortable; planning and paying your taxes.
Most privately held businesses are S-Corps, meaning the income from the business flows to the individual owner, and gets taxed at an individual rate, not a corporate rate.
Most S-Corps are taxed on a cash-basis, meaning they file based on their cash-profit, not their accrual-profit. So, any impact you can make between now and the end of the year to reduce your cash-profit for 2017, means that you should have started planning and strategizing yesterday.
Years ago we were working with a client who was doing over $100 million dollars a year and had about 15 corporations under their umbrella. For years they allowed their tax returns to go past due, and every year they’d mail in estimated tax payments to the IRS, hoping to avoid a red flag. They were avoiding their tax issues, not planning ahead, and never seemed to reconcile this misstep.
Our consultants worked closely with the client, and spent over a month working with their CPA’s, bringing everything up to date. Ultimately, they received a check from the IRS for $3 million dollars for years of overpayment. Obviously, this type of tax planning could have been better thought out.
That’s $3 million dollars of blood, sweat and hard work that was nearly burned in the name of avoidance, and I don’t think there’s an owner alive, or dead, who’d be willing to part with their hard earned money for that reason!
Every year, you need to be planning your year-end tax strategy, especially between the months of October and December. I strongly suggest you meet with your CPA 3-4-5 times between these months, making sure you are developing and implementing a strategy to fairly minimize your tax burden.
Because every business is different, I can’t give you specific advice; but think about how hard you’ve worked to earn every dollar of taxable income. You and your tax preparer should lay out a strategy that will help protect your cash while affording you the opportunity to minimize your tax burden.
If your advisor is not doing this for you 2-3 months in advance of your filing date, find someone else. As always, feel free to tweet at me @MoscaSmallBiz, or give me a call at 800-743-0402.