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Small Business Owners Need to Focus More on Tax Planningby
Looking ahead, noted the Wall Street Journal, is always a good idea when small business owners do their business and personal financial planning. And income taxes are one of those things that most businesses should probably give more attention to all year. Too many of them put off even thinking about taxes until year-end or just before the filing deadline. Like their investing, their tax planning should be a year-round issue.
Small business owners pay their taxes all year long, so they should be focusing on tax planning all year long. That doesn't mean owners should make financial decisions based solely on tax considerations. But it does mean they should never make important financial decisions without at least considering the tax consequences.
In my experience, the Journal's excellent advice goes unheeded by almost all freelancers, particularly writers and artists. They're clueless about the importance of planning ahead.
Small business owners adverse to advance planning mistakenly think of taxes as simply a once-a-year affliction caused by the need to grapple with their 1040 forms. Contrast them with savvy owners who factor taxes into their planning throughout the year and stay on top of continual tax law changes.
Businesses with the foresight to plan ahead nimbly sidestep pitfalls while capitalizing on scores of perfectly legal opportunities to diminish, delay, or deep-six paying sizable amounts that would otherwise swell the coffers of federal and state tax collectors.
Owners should start early on their planning and leave enough time to implement strategies that can generate dramatic savings â maybe thousands of dollars â for 2015 and even give a head start on 2016 and later years. They reap these savings only if they complete their maneuvers by Dec. 31.
Owners oblivious to the calendar forever forfeit such opportunities to reduce taxes for 2015 and 2016, though they still have until the filing deadline for 2015's return to make deductible contributions to tax-deferred retirement arrangements, such as traditional IRAs and simplified employee pension plans.
Subtractions that add up. When Form 1040 time rolls around, overlooked write-offs can cause owners to pay more taxes than legally required. Even small deductions can add up to surprising savings. Yet year in and year out, many millions of business owners routinely fail to claim perfectly legal deductions, thereby needlessly enriching Uncle Sam.
What is the main reason they miss deductions? Poor recordkeeping. Who trims their tax tab to the legal minimum? The folks who keep the best records.