At this time of year, instead of thinking about their taxes, a lot of businesses are focusing on operations, growth, and summer workloads. But the summer months, particularly June and July, are a great time for companies to check in with their taxes.
While you can wait until the end of the year to review your situation with professional tax services in Coral Gables, leaving it this late can lead to some unpleasant surprises, unnecessary tax liabilities, and even some missed opportunities to save money. By proactively reviewing your taxes before the third quarter begins, you’ll have time to adjust your tax withholdings, update estimated payments, and assess whether your existing entity structure is still performing for you in terms of tax efficiency.
The importance of a mid-year tax assessment
Giving you a clear picture of your company’s financial standing, a mid-year review of income, payroll, expenses and projected profits can help you spot and react quickly to any potential tax issues.
Let’s look at exactly what you should be reviewing in a mid-year tax check-up:
Employee and owner withholdings
If you receive wages through payroll, you should review both federal and state withholding amounts. Your existing withholding levels might not cover all of your tax obligations if your income has gone up since the start of the year.
In the same way, employees may need adjustments to be made to their withholding if they’ve been given a bonus, or made earnings on an investment, for example.
Timely changes can prevent big balances being due at tax filing time; spreading the cost over what’s left of the year.
Estimated tax payments
Quarterly estimated tax payments are common for many company owners, independent contractors and partners, and they are usually based on results from the previous year. However, the company’s current performance may be totally different. With a mid-year tax check-up, projected income can be compared with original estimates, underpayments can be identified, penalties and interest avoided, and cashflow planning improved for the rest of the year.
For companies with profits that are higher than anticipated, raising estimated payments at this point in the year, can prevent a hefty tax bill when it’s time to file. If profits are lower than anticipated, future payments can possibly be reduced, and extra working capital retained.
Entity structure
As your business expands, your chosen entity structure may no longer provide the same tax advantages, making it a good idea to talk to your tax advisor about whether you should select a different type.
Decisions surrounding entity structures usually need advance planning, and with a mid-year tax check-up, you and your tax advisor can evaluate your options before the end of the year arrives.
Trends in income and deductions
By taking a closer look at trends in revenue, costs associated with payroll, equipment, vehicles, fees for professional services and retirement plan contributions, you can help determine if some purchases should be delayed or additional deductions accelerated. Provided you have accurate and updated financial reports, you should be able to carry out this assessment with relative ease.
Once you’ve reviewed these things, it’s time to start planning year-end strategies, and coordinating with cashflow:
Talking to your tax advisor about year-end strategies well in advance, offers more flexibility for strategies that include such things as:
- Section 179 equipment purchases
- Retirement plan contributions
- Succession and ownership planning
- Owner compensation adjustments
- Bonus depreciation planning
It’s also important to remember that every decision made about taxes, has an impact on cashflow. By reviewing taxes with a local accounting firm in Coral Gables mid-year, you can plan better for your upcoming tax obligations.
Staying ahead of your tax obligations as a business owner is made far easier with a detailed mid-year tax checkup. Enabling you to make decisions about your finances before the end of the year, that are far better informed, you can limit tax surprises, enhance cashflow management, and put your business in a stronger position at the end of the year.