Pre-Tax Planning for Business Owners

Many small business owners do not create or consider a tax plan until it is time to file their annual taxes; they receive a surprise tax notice or IRS bill. A tax plan is essentially a plan to minimize or eliminate your tax liability. On average, tax planning ahead of time saves business owners anywhere from $25,000 to $100,000. Tax planning is not tax evasion (which is illegal). Tax planning allows you to avoid taxes, which is 100% legal, by maximizing the IRS tax code. 


Here is where small businesses get it wrong:

  1. The business is not registered correctly.

  2. They do not have financial statements in place.

  3. The business bank account is co-mingled with personal expenses. 


Here are a few tips to minimize your anxiety and stress around your taxes:


1. Maximize Business Expenses

A business deduction reduces your taxable income. Business expenses are commonly used to reduce taxable income. Business expenses 100% tax-deductible if they are necessary and ordinary to operate your business. No, not your personal expenses. Do not swipe your business card to pay for your personal expenses. You should have a payroll process or profit share schedule in place. Here is a list of commonly missed tax deductions from service providers:

  • Cloud subscriptions

  • Advertising

  • Training courses

  • Home-based office expenses (home office must be a designated area and have its own suite number)

  • Business insurance

  • Salaries and benefits

  • Company assets (phone, laptop, tablet, computer, printer, scanner, office furniture, etc.)

  • Cleaning supplies

  • Personal protective equipment

  • Marketing and branding materials


2. Commonly Missed Tax Credits 

A tax credit is a dollar amount that reduces your tax bill. If your current tax bill is $10,000, but you qualify for $3,000 in tax credits, your new tax balance is $7,000. Here are commonly missed tax credits:

  • Health insurance premiums

  • Electric vehicle credit

  • Disabled access credit

  • Work opportunity tax credits

  • Family Medical Leave Act credit

  • 2020 Cares Act employee retention credit

  • Employer-provided childcare facilities


3. When to Create Your Tax Plan

Every small business CEO should meet with their tax accountant and financial advisor annually to create your tax plan. Your plans may change year to year. For example, self-employed owners must have two years of financial statements with increased profits to qualify for most conventional funding (business loan, home loan, home lease, etc.). Your current tax plan may require you to forfeit business deductions to meet a net income amount. If you need to report $80,000 consecutively on a $120,000 gross income, you cannot deduct more than $40,000 of expenses. 

Once you’ve finalized your tax plan for the year, meet with your money team (CFO, Financial Advisor, Tax Accountant, and Bookkeeper) to ensure you are on track for your goals.


4. Closing the Year

October is a great month to meet with your bookkeeper to finalize a year-to-date financial activity (how much money you’ve made vs. how much you’ve spent), but December may be more realistic for you. Here’s a quick reference guide on closing your financial statements for the year:

  • Locate last year’s tax return and final financial statements. 

  • Organize all receipts and scan them into a digital folder.

  • Reconcile all bank and credit card accounts with QuickBooks Online. 

  • Count all physical inventory.

  • List all company assets in an Excel file with purchase date, purchase amount description of the item, and usage description.

  • Locate all payroll and 1099 payout reports. 


Ready to get a handle on your taxes before the deadline?

These are strategies we help business owners implement every day. Are you ready to save money on tax fees and reduce your tax liability by preparing for tax season ahead of time? Our “Smart Taxes” course for Solopreneurs walks you through a step-by-step process for implementing good record keeping habits, financial management and pre-tax planning. Grab your copy here:


Remember, every dollar counts.
CFO for Women
We help women-owned enterprises improve their decision-making and boost their bottom line.

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