5 Tax Mistakes You’re Making Right Now
(This post originally appeared on Inc.)
I know, it’s a busy time of year. You’re back from the summer holidays. Orders need to get out the door. Projects need to be done. Budgets need to be approved. You’re doing your best. But there’s something big you’re not doing. And you know it. It has to do with your taxes, which, if you’re making profits, is likely the biggest expense on your income statement. You could be doing things right now to save on taxes. But you hate taxes and even talking about them kind of upsets your stomach. Me too. But you need to do pay attention. Now. Because if you’re like most of my clients you’re making at least five mistakes. Fixable mistakes, as long as you take action right away.
You’re not making your estimated payments. Or you’re making them, but just not on time. Or you’re making them, but you’re not paying in the full amount it. I get it–it never seems like you have enough cash. It physically repels to sign the check. It kills you that just when you see your business starting to thrive you get knocked back with a giant tax payment. But this is the law and many of my clients try to pretend it’s not. If you make your payments late you’ll be subject to penalties and fines. If you don’t make your payments you’ll be subject to penalties, fines and a whopping tax bill next year when you file your returns. And if you don’t make your payment then well I have two words for you: Wesley Snipes. The smart business people I know suck it up, schedule their tax payments with their other accounts payables and forecast this amount as a required quarterly disbursement along with everything else. Tax payments are not optional. Don’t make this mistake.
You are not putting enough away in your retirement plan. A recent survey foundthat 70 percent of business owners have their wealth tied up in their own businesses. Another report found that only 5 percent of companies with four or fewer employees offer a retirement plan, compared to 31 percent of companies with between 26 and 100 employees (which is still insanely low). The more retirement options you offer to your employees the more you can put away yourself. Not only that but many of my clients still don’t fully take advantage of individual IRAs or even create Simple Employer Plans (SEPs) for themselves. Not only can this save taxes, but retirement plans are critical for diversifying your assets in case, God forbid, your own company falls on hard times. Put a plan in place. Now.
You cling to bad stuff. It’s time to face it: that customer is never going to pay you. He says he will, you hope he will, it kills you that he hasn’t. But he won’t. And by the way, that pallet of calibrated switch-screws aren’t going to sell either. I know you had good intentions when you bought it. But no one wants it. It was a bad buy. Move on. Write off the receivable. Write off the inventory. This will clear your head. It will clear some space on the floor. And it will provide a tax deduction for you too.
You’re not taking advantage of the healthcare tax credit. OK, I admit this is not such an enormous benefit and most of my clients don’t qualify. That’s because to take advantage of this credit you can only employ less than 25 people and their average salary must be less than $50,000 per year. And you have to purchase health insurance. And (soon enough) from the government exchanges. But if you do qualify for this, you can get a credit of up to 50% on what you pay for your health insurance. And that’s a credit, which means you can carry it forward or backward to offset taxes in the past or future if you’re not making any money this year. If you do qualify and you haven’t taken advantage of this since 2010 then you should have a frank discussion with your accountant. If he’s still employed by you after this discussion then have him go back and amend your past returns to take advantage of this credit.
You’re not meeting often enough with your accountant. I know, he’s not the most exciting guy in the world. I’m an accountant and my idea of excitement on a Saturday night is watching Ken Burns’ latest biography on Roosevelt. But this is a cost of doing business–meeting with your accountant (hopefully a Certified Public Accountant). And you need to do this at least quarterly. Yes, quarterly. Too many of my clients have a “year end” tax meeting (which means late December or, and I’m not kidding…January) which oftentimes just turns into a crying and moaning session about the state of America and our broken tax system. And it’s usually the accountant who’s doing the crying and moaning. By meeting with your CPA quarterly, sharing your numbers, discussing the future and (egads!) planning you will be able to consider the tax impacts of any significant business transaction you make before you make them in order to take the most advantage.
You’re not doing these things, are you? Thought not. Hey, join the crowd.