How Small Business Owners Can Save on Taxes
The first step to tackling any problem is understanding it clearly. As a small business owner, paying too much in taxes is a challenge you don’t want to overlook. The next step is identifying the reasons behind a high tax bill and finding ways to reduce it. In this article, we will explore the causes of high taxes and strategies to help lower your tax burden.
Why Are My Taxes So High?
There are several possible reasons, but the primary one is simple—you’re making money! Congratulations! The more profitable your business is, the higher your tax liability, as taxes are typically based on a percentage of income.
However, that doesn’t mean you have no control over the amount of taxes you owe. Some key factors that contribute to a higher tax bill include:
- Missed deductions and credits
- Poor expense management
- Improper use of depreciation and amortization
- Underutilization of retirement accounts
- Lack of proactive tax planning
- Choosing the wrong business structure
How Can I Lower My Taxes as a Small Business Owner?
Many business owners look for a single, game-changing tax deduction, but the reality is that effective tax savings require a strategic approach. A crucial step is working with a tax professional or CPA to create a tax projection—also known as a tax forecast or estimate.
A tax projection is a financial analysis that predicts and prepares for future tax liability. By estimating expected taxes based on current financial data and anticipated changes, a CPA can offer tailored recommendations and identify tax-saving opportunities.
What Information Is Needed for a Tax Projection?
To prepare an accurate tax projection, your CPA will need:
- Financial statements, including profit and loss statements and balance sheets
- Revenue and sales details, categorized by product or service
- A breakdown of business expenses, including operating costs and COGS (Cost of Goods Sold)
- Recent tax returns to assess historical tax liabilities and deductions
- Depreciation schedules outlining asset costs, useful life, and depreciation methods
- Payroll information, including employee salaries, benefits, and payroll taxes
- Details on major capital expenditures, such as equipment and property purchases
- Loan and debt details, including interest payments
- Quarterly estimated tax payments to determine contributions toward current-year tax liabilities
How Much Does a Tax Projection Cost?
The cost of a tax projection varies. Since it’s a detailed process, it requires time and effort, making it an investment rather than an expense. The price may depend on factors such as:
- Business Complexity – More revenue streams, employees, and expenses mean a more detailed projection.
- Bookkeeping & Organization – Well-organized financial records streamline the process, reducing costs.
- Tax Law Changes – If recent tax laws impact your business, extra research may be required.
- Communication – Promptly providing necessary information to your tax professional helps keep costs down.
When Should You Request a Tax Projection?
Before year-end—well before December 26-31! CPAs and tax professionals are busy and have personal lives too. The best time to request a tax projection is between mid-October and mid-November. This gives you time to implement tax-saving strategies, such as:
- Opening and funding retirement accounts
- Issuing employee bonuses
- Purchasing and placing equipment into service
Another great time to plan is July and August, when your CPA can evaluate year-to-date income and make mid-year recommendations.
Find the Right Tax Professional
Taxes are complex, and every business is unique. Consulting a knowledgeable CPA or tax professional is essential for navigating tax laws and identifying the best strategies for your specific situation. Working with an expert ensures that you are not overpaying in taxes and are taking full advantage of the tax-saving opportunities available to your business.
“Choosing the right accounting software is not just about managing numbers; it's about giving your business the financial clarity and control it needs to grow and thrive.”
Daniel X. Horrar
Prioritize Security
Given that accounting software will handle sensitive financial data, robust security features are a non-negotiable factor. Choose software that offers data encryption to protect information from unauthorized access, regular backups to prevent data loss, and multi-factor authentication to secure logins. Additionally, role-based access controls allow you to restrict permissions based on user roles, ensuring that only authorized personnel can access certain financial data. Strong security measures ensure your business’s financial data remains safe from both internal and external threats.
Consider Scalability
Your business’s needs will evolve over time, and your accounting software should be able to grow with you. When evaluating your options, look for software that offers scalability. Features to consider include the ability to add more users or modules as your team expands, support for larger transaction volumes as your business grows, and advanced capabilities like multi-entity management if you plan to expand into multiple locations or markets. Scalable software ensures you won’t need to switch systems as your business grows, saving you the hassle and expense of migrating to a new solution.
Read Reviews and Get Recommendations
Customer reviews and expert recommendations can provide valuable insights into the performance and reliability of different accounting software options. Look for online reviews on platforms like G2, Capterra, or Trustpilot, and seek out testimonials from other businesses in your industry. Recommendations from your accountant or financial advisor can also help you assess which software might be best suited to your business. Real-world feedback can highlight the strengths and weaknesses of various options, helping you make a more informed decision.
Take Advantage of Free Trials
Many accounting software providers offer free trials or demos, which can be an invaluable opportunity to test the software before committing. During the trial period, pay attention to the user interface and navigation, evaluate the core features and integrations, and assess the software’s performance and reliability. A trial lets you determine whether the software meets your expectations and whether it’s a good fit for your business needs.
Final Thoughts
Choosing the right accounting software is a critical decision that can significantly impact your business’s efficiency and financial health. By carefully assessing your needs, considering your budget, and prioritizing essential features, you can find a solution that supports your business goals and helps streamline your financial management. Take your time with the selection process—research thoroughly, test options, and seek expert advice if needed. With the right accounting software in place, you’ll be equipped to manage your finances effectively and drive your business forward.
Russell Yates
