When Should I Call My Tax Team for Advice?

When starting a business, it is considered critical to work with tax and accounting teams to set it up properly. You also want to consult with the teams on how to set up your bookkeeping to facilitate accuracy, submission for tax computation, and timely reporting. Too often though, the small business owner considers their time with the professionals over after that until tax time rolls around. The problem with that approach is that tax time rolling around can roll over you financially if you have made decisions during the year you should have made differently.

In operating a small business, there are decisions you make about purchases, payment methods, long-term obligations, and even customer billing that may create tax liabilities you could have avoided with a different approach. The only way to know is to consult with your tax and accounting teams before the decision to discuss options that can have a financial impact. Some of these decisions may include:

• Buy or Lease Equipment, Vehicles, or Facilities – The purchase of equipment, real estate, or vehicles for business use involve depreciation. In some cases, depending on income and the need for write-offs, you may want to accelerate depreciation. Or you may find that leasing is a better tax decision that tax year. Before the acquisition of the item, discuss it with your tax team to make the best tax-wise decision.
• Which Type of Depreciation is Best – Even if you know that you want to purchase and depreciate an asset, there are different ways and timelines for depreciation, and your tax team keeps up with current tax law to advise you of how each will impact your deductions and taxation in the current and future years.
• Employee Compensation Changes – One of the changes many businesses found forced upon them in 2020 was sending some employees home to work. Some businesses found that they were not experiencing negative effects from this new situation, so they considered changing the way employees were compensated or moving them from employee to independent contractor or freelance status. Consulting with your tax team about the differences is important, especially when it comes to the tests used by the IRS to determine if an independent contractor is really an employee. Penalties are tough.
• Changing or Adding Employee Benefits – From health insurance to retirement plans, any change in benefits or adding new ones should be made only after talking to your tax team about the taxation results and options.
• Growth or Expansion Plans – When things are going great it is easy to make decisions about growth or expansion on the fly. The money is there, cash flow is great, and you are ready to add people, space, product or service lines, or inventory. A talk with your tax team will not kill the buzz, but it could change the way you were about to do things to put even more money in your pocket at the end of the year.
• Major Lifestyle Changes – Small business owners, especially those who are sole proprietors or partners, should meet with their accountant to discuss upcoming lifestyle changes. Whether it is buying a home or getting married, there could be business tax consequences or opportunities you do not want to miss. An example would be the opportunity to put your spouse on the payroll and take advantage of some special IRS considerations for doing so.

The takeaway is that the small business owner is constantly making decisions that affect their financial future. They could impact that year’s taxes, or they could have an impact years into the future. When in doubt, give your tax team a call.