‘Tis the season for out of office messages and “let’s circle back after the holidays” emails.
The natural inclination during the last few weeks of the year is to take time off and make plans to hit the ground running once the calendar page turns over. People are in full vacation mode, after all.
But that doesn’t mean entrepreneurs should be hitting the snooze button.
In fact, it might be prime time to get your tax plan in order.
Sure, most people don’t even want to think about taxes until closer to the April deadline. But Adam Bateman, the Tax Practice Leader at Moore Colson in Atlanta, walked us through some practical tips for how founders can use the end of the year to get ahead of tax issues down the road.
Here are some of his tips:
Buy What You Need, Not What You Want
New founders and business owners might be tempted to adopt a ‘use it or lose it’ mentality at the end of the year, thinking it best to buy things now in order to save money on taxes down the road.
But that might not be the most financially viable option, says Bateman.
“We always tell our clients, you should never buy anything just for the tax deduction,” he told Hypepotamus. “But if it’s a piece of equipment that your business will need in the next six months, it may make sense to go ahead and buy it before the end of the year in order to get the tax deduction in the earlier tax year.”
Get Organized Early
One of the big mistakes Bateman said he sees with his clients is lack of organization early on.
“A lot of times with startups and entrepreneurs, they have business and personal [finances] all intermingled…and that doesn’t always work out very well,” he said.
In order to avoid massive headaches down the road, Bateman said he often talks to clients about setting up different bank accounts and having solid accounting procedures in place way ahead of tax filing time.
Another recommendation Bateman tells his clients: Get a CPA or tax advisor lined up early.
“Waiting until April to find someone to help you with your tax return will mean your choices are going to be very limited. Most CPAs and advisors are not taking on new clients that close to a deadline.”
Plus, those who start working on their taxes early have the added benefit of actually knowing how much they will owe at the IRS deadline.
“Particularly for entrepreneurs, cash flow is so important. If you are going to have a significant cash outlay to cover taxes, it helps to know that you know four to six months in advance,” Bateman added.
Know The Nuances Of Your Business
The “do it yourself” mentality adopted by most entrepreneurs might tempt early stage founders to use standard plug and play tax software systems during tax season. But Bateman said it is important to think about the nuances of your specific type of business.
And that might mean looking for outside help even before your business is in the black.
“Even if you’re not making profit at the end of the day, you want to make sure that if you are incurring any losses, that you’re able to capitalize on those and use them to offset income in the future.”
Of course, every startup is different, so consulting a tax advisor is very important to ensure that there are no surprises come tax time.
