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Managing Cash Flow During Tax Season

Managing Cash Flow During Tax Season

Atlanta, GA –

Managing cash flow during tax season is critically important for running an effective small business. Filing correct tax returns in a prompt manner means fewer headaches for business owners and fewer problems for the firm’s day-to-day operations. According to the Internal Revenue Service, nearly one third of all Americans wait until the last week to file their business tax returns. Small businesses often face problems with accruing significant 941 quarterly payroll tax liabilities; this mainly results from misestimating the number of contract workers versus salaried positions. If this happens to your business, make sure to compare W-3’s and W-2’s to employees listed on your payroll register, as well as wages paid during the quarter. Employers must also recognize that for the end of each quarter, payroll tax deposits are due by the end of the following month. If a firm falls behind on these payments, they risk garnishment of income by the IRS to satisfy such obligations.

Likewise, registration of various business entities can result in varying taxable criteria. Should an entity register as an S corporation, they can potentially avoid taxes on both the corporation and the shareholders. This process, commonly referred to as double taxation, has led many firms to reorganize into an S corp. Gains and losses bypass the corporate level, and instead go straight to the individual owner’s tax returns, thus avoiding taxes on the business. In order to qualify for this status, however, the IRS dictates that, “any shareholders who work for the company must pay him or herself reasonable compensation.” Failure to do so could result in reclassification of earnings to the corporate level, disallowing these benefits.

Of course, one of the simplest and most effective ways to reduce your company’s tax burden comes from business deductions. The ability to recognize business costs, such as travel costs, charitable donations, and depreciation on equipment, allows a firm to reduce its taxable basis. For businesses with significant fixed equipment purchases, the IRS, under Section 179, allows businesses to deduct various property types as expenses for tax purposes that would otherwise be capitalized. Capitalization of these expenses would amortize them throughout the course of the asset’s useful life, resulting in greater tax liabilities in the future.

Deferring employees’ incomes to retirement accounts or pension plans helps stabilize cash flow and protect against potential tax problems. In fact, the IRS encourages the creation of employee retirement plans because of an array of different benefits. These include tax-deductible employer contributions, tax-free growth for plan assets, and flexible plan options. This encourages firm growth as well as valuable retirement incentives for employees, all while decreasing the impact of various taxes faced by the firm.

Tax

Taxes are inevitable for any small business; managing any potential liabilities and pitfalls will help maximize business cash flow, especially since tax season is rapidly approaching. Businesses must gather all necessary information related to payrolls and wages, and must file their return by March 15th to avoid federal penalties. In order to understand the intricacies and specifics of the tax issues that your firm might face, consulting a CPA or tax advisor is highly recommended. By using these helpful tips, your business will be well prepared to weather the tax season, with your business operations running smoother, and more peace of mind for all parties involved.

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