As a business owner, when was the last time you talked to your tax accountant? Hopefully the answer is very recently, and if not, it needs to be a priority. Tax planning is one of the more critical, but too often unutilized tools in a company’s financial arsenal. For many business owners, recovery from the pandemic has been better than expected, but uncertainty due to potential legislation and continuing supply chain issues and an extremely tight labor market is still very real. Having a good proactive tax advisor is critical for a business, and dialogue should be frequent, providing business updates to them, and answering key questions they have.
Here's why it matters:
1. First and foremost, every business is unique, and tax implications for one can be very different from another. A solid tax accountant takes a customized approach, helping create the most favorable tax outcomes short term and long term for your business.
2. Critical decisions may need to be made before year end. Particularly for businesses with substantial profit and cash, an investment in assets before year end could result in tax savings. Depending on the type of retirement plans in place, contribution amounts may need to be made before year end as well.
3. Many tax provisions are expiring at the end of 2021, including the Employee Retention Credit that was part of the CARES Act. The 2021 tax year will also usher in changes to the treatment of net operating losses, business interest expense, and business meals. Understand how each of these items and others may affect your business and what you need to do before year end to be sure and take advantage.
4. For businesses who performed ahead of expectations and generated substantial profits, that likely means a much larger tax bill as well. Is ample cash available to pay the liability? Understanding the potential implications may affect investment plans in the new year.
What you need to do:
1. Ensure you have a solid tax accountant that understands your business – you don’t have to be the tax expert yourself. But if they aren’t asking you questions throughout the year, you may want to seek one who will. There are countless horror stories of businesses that made hefty tax mistakes because key context was not discussed.
2. Have good financial records. Your tax accountant can only work with the information provided to them. Before year end, the ability to provide year-to-date financial info plus an estimate of the remainder of the year will be crucial in allowing for effective planning conversations.
3. Don’t let the headlines cause panic. Much has been made of proposed tax legislation. Until it becomes law, it will not affect your business. Act on factual information with the guidance of your tax accountant.
4. Have at least a rough picture on what the new year might look like financially. That could make a huge difference in deciding the timing or whether to go forward at all with certain decisions. If substantial growth is expected next year, it may be beneficial to defer some expenses accordingly.
5. Start having the conversation – today.
A knowledgeable tax accountant is one of the strategic partners every business needs. Ensure you have one, talk to them regularly and look forward to the new year with confidence. It saves money, improves peace of mind and lowers risk.