Right now, every transportation business owner has their eyes trained on the April tax deadline. Especially owners that didn’t focus on tax planning last year. If this is you, the tax deadline might be filling you with anxiety.
That’s why we recommend tax planning on a quarterly basis. By reviewing your finances on this cadence and using them to anticipate what you will need to set aside for taxes, you greatly reduce (or eliminate) tax surprises that could sneak up on you. No one likes to find out that they owe the IRS and pay thousands because they swept their tax strategy under the rug.
Once you discover you owe money at the end of the year, it may be tempting to hastily spend and make quick decisions to reduce your tax burden. While this can be a great choice in some circumstances, it can also be detrimental if your business doesn’t have the needed cash on hand. Find out how to estimate your tax payments and create a concrete tax strategy to avoid these hasty choices.
Estimating Tax Payments
Once you commit to tax planning on a quarterly basis, the next step is to estimate what you should be setting aside and paying towards taxes each quarter. The way tax estimates are typically calculated is by reviewing last year’s revenue and how much you owed for income taxes. This will give you an idea of what you will owe for this year’s taxes. As you see projected revenue increase or decrease compared to last’s years metrics, you can adjust what you are setting aside for taxes accordingly.
Why should these adjustments be made? While it’s not advisable for business owners to have a big surprise at the end of the year and owe a bunch of money, you also don’t want to overpay because you didn’t account for new expenses.
It’s similar to personal income taxes: for example, if you don’t claim your children as dependents, you may end up paying in too much towards taxes and having a huge refund at the end of the year. While it might not seem like a bad situation to receive a bunch of money once taxes are filed, this actually means that you could have had more consistent money throughout the year to invest into personal goals like paying off a car loan or taking a much-needed vacation.
The same holds true for business. Not claiming all your expenses will cause overpayments. That money could be funneled into important business initiatives such as growing your cash reserve, hiring another employee, buying new equipment, etc.
Claim Expenses Correctly
Another key to tax planning is categorizing your expenses correctly and keeping your financials clean. Whether you have a tax professional file your taxes or you complete them yourself, if your financials are messy, it will make tax filing a nightmare. For example, some meals can be expensed at 100% and some are not at all deductible. Knowing these nuances will be important for tax planning and tracking expenses appropriately in the first place will make your life (or your tax professional’s life) much easier.
Leaving Accounting to the Professionals
If you are hit with surprises year-after-year or you are struggling to categorize your expenses correctly, it might be time to outsource to professionals. Some of our clients choose to use Anders for their day-to-day accounting functions along with financial advisory services (such as cash flow forecasting and scenario planning). They will then use the clean financial statements we provide to give their tax professional a clear view of their numbers.
Other clients use Anders for both day-to-day functions, financial advising and tax planning. Doing what’s best for your business is always the right move. Whatever method you use, it’s important to choose a tax professional that is prompting quarterly tax planning or choosing a financial business advisor who will prompt you to speak with your tax planner throughout the year.
If you missed tax planning last year, and would like help tax planning for this year, you can reach out to our virtual CFO team to learn more about our integrated tax services. You can also check out how we help clients in the transportation and logistics industry increase business profitability with our virtual CFO services.
