Your sales numbers are in, and they confirm your suspicions: it’s been a standout year for your company! But as your business grows, so do your tax responsibilities. Here are five tangible tax tips to remember when your business hits a growth spurt.
Maybe you already have the proper business structure in place, or perhaps you never put too much thought into business strategies. Maybe your recent growth signals an upgrade. Either way, the your business structure can have significant implications for your tax liability.
Sole proprietorship: Makes you personally liable for debts and taxes but is easiest to set up
Partnership: Allows shared responsibilities and profits, but partners share liability and taxes
Corporation: Offers limited liability protection but involves more complex regulations and taxes
Choose the one that best aligns with your growth strategy, tax objectives, and risk tolerance.
Next, ensure you understand all your tax obligations as a small business owner. It may have been easier to overlook a thing or two when business was light. But now, as you may hire employees or sell out of state, be aware of income, employment, sales, and any other taxes that may apply to your unique situation.
Once you've selected a business structure, keeping accurate records of your income, expenses, and other financial transactions is crucial. These documents can simplify the process of identifying deductions and credits and make filing taxes a breeze.
Staying organized and proactive in managing your taxes also helps avoid last-minute scrambling so you can meet filing deadlines without missing deductions. Here are some organizational tips:
Use accounting software to track finances
Keep receipts and invoices organized
Set reminders for tax deadlines
Regularly review and update financial records
As you experience substantial business growth, expect increased expenses for operations, marketing, and infrastructure. Fortunately, these costs can be deducted from taxable income, easing your tax burden. Additionally, investments in research and development or new hires may unlock additional tax credits and incentives.
Consider implementing these tax-saving strategies:
Deferring income: Postponing receipt of income to the next tax year can reduce current tax obligations
Accelerating expenses: Bringing forward deductible expenses to the current tax year can lower taxable income
Investing in tax-advantaged retirement accounts: Contributing to IRAs or 401(k)s can offer tax benefits
Taking advantage of tax-deferred investment opportunities: Exploring options like 529 college savings programs and HSAs can offer potential tax breaks
Taxes are complex, and you already have your hands full running your business. However, staying on top of any changes to tax laws and regulations that could affect your company’s tax liabilities is important.
Working with a tax professional is the easiest way to ensure compliance. Not only can they make sure you are aware of any changes to federal, state, and local tax laws that may impact your business, but they can also offer a tailored tax strategy based on your unique needs.
As your business grows, consider your long-term goals. Planning for continued growth can mean preparing for increased tax liabilities with more employees, multiple locations, or taking your brand international.
On the other hand, if you're eyeing an early exit and plan to sell your business or transfer ownership one day, factor in the potential tax implications. A financial professional and tax professional can tailor a business succession solution to minimize taxes and make the transition easy.
By evaluating the state of your business now and your goals for the future, you can approach your company’s taxes in an efficient and effective manner that ensures compliance with maximum deductions. Be sure to leverage a financial professional to help you stay on track as your needs change over the years.
New York Life provides small business owners with a variety of services from insurance policies to buyout solutions. Reach out for professional guidance at any stage of your business.
This article is provided for general informational purposes only. Neither New York Life Insurance Company, nor its agents, provides tax, legal, or accounting advice. Please consult your own tax, legal, or accounting professional before making any decisions.
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