6 Midyear Tax Moves for Small Business Owners

Larry Alton for Agbeat.com writes: During the mid to late summer months, many businesses experience their mid-year “slump,” a time to take the opportunity to reflect on the past few months and plan for remainder of the year. One big consideration at this point is the company’s anticipated tax liability.

When tax filing season hits, the time has already passed for your company to make substantial adjustments to avoid unpleasant surprises. The additional time that summer provides in an entrepreneur’s busy schedule allows for examination of various aspects of company finances before business picks up again.

How mid-year tax planning helps you stay ahead of the game

Tax filing season may seem far away, but consider how quickly the past six months have gone! Rather than waiting until January to gain a firm understanding of where your firm’s tax liability stands, making a more proactive effort means you’ll probably enjoy fewer complications and reduce surprises when the time comes to file.

Planning for tax season well ahead of time helps a business adjust its strategies (if necessary) to ensure a relatively painless filing process. According to Natalie Cooper, editor of BankingSense.com, “For small businesses, the mid-year ‘off season’ is the perfect opportunity to take stock of how the year has gone and decide on a game plan for the second half.”

Considerations for the mid-year tax review

While conducting their mid-year tax reviews, small business owners should engage in one or more savvy tax-planning activities, for example:

• Consult with a tax professional. Navigating the complex process of tax planning is often time-consuming and confusing.Talking with an accountant during the “off-season” ensures ready access to his or her time and can help you gain valuable insight into the current state of your company finances. Tax professionals also provide an outside perspective, and can identify areas where their client can improve a process or take advantage of a new tax break.
• Examine the company’s entity structure. Expanding companies may not realize they have outgrown their legal structure until long after they could have enjoyed the new protections and tax benefits. An accountant and attorney can help a business owner decide whether the time has come to convert from a sole proprietorship to a corporation or some other, more suitable, entity.
• Project profit and loss. Compare the company’s current financial statements against those from the same period last year. Measurable changes – for better or worse – may indicate the need for adjustments. 
  Taking into account expected decreases or increases in sales for the rest of the year, use data from the first two quarters to determine whether estimated tax payments should change accordingly. The result will be fewer surprises at tax time.
• Set up a retirement account. During busier times, the thought of retirement may rarely pass through an entrepreneur’s mind. However, if you’re generating regular and significant profits, you should begin setting money aside for this milestone as early as possible in your career.
  Banking and financial professionals help customers choose between retirement accounts such as SIMPLE, SEP IRAs, and 401(k)s to ensure they and their employees receive the optimal savings and tax benefits.
• Invest in new equipment and furniture. Under the Section 179 Deduction, small businesses receive tax benefits for purchase of “capital assets” such as desks, computers, POS terminals, and other tangible resources. Take advantage of summer downtime to seek out the best vendors and prices for such items. Don’t forget to maintain documentation of these purchases for tax time.
• Set up benefits for employees. If you are considering offering health, dental, vision, disability, life, or other types of benefits to employees, you might take the opportunity to study the issues in depth over the summer. Not only does the extra time allow companies to choose the best and most cost-effective plans; it also gives them time to benefit from the resulting reductions in payroll taxes.

These represent only a few of the many ways business owners can prepare for tax season over the summer. But they are some of the most effective and compelling ways to remain competitive and decrease your tax liability.

Entrepreneurs who take these and other tax-conscious steps remain free to commit their full attention to running their businesses effectively for the remainder of the year. When tax season hits, it certainly will not catch such savvy business owners off guard!

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