Now that the year is more than half over, it's the perfect time to review the finances and tax health of any small business. Plans and budgets should be compared with actual figures as of June 30 to allow for any corrections or adjustments. If there are no plans or budgets, here's a question: Is the business at least half way to meeting its profit and cash flow goals for the year? It's not too late to write a business plan for 2012 that includes revenue estimates.
Accurate and comprehensive records are required to maximize business tax deductions. Now is the time to get caught up if the business has not been keeping track of expenses. If the business owner struggles with this administrative task, the best advice is look for a new solution. It may be hiring a bookkeeper, investing in a technology solution (like a receipt scanner or iPad app), or dedicating 30 minutes each day to expense tracking.
One important step business owners should immediately take is to meet with their tax advisor. The owner should start planning for this year's tax credits, learn what deductions might have been missed in previous years, and find out if any changes in the tax rules will affect the business. Don't wait until April 15, 2013. Depreciation deductions should be discussed if equipment purchases are planned. The tax law regarding depreciation will be changing in 2013, so time is of the essence. Estimated income tax payments should be assessed. A tax professional can help ensure that penalties for underpayment are avoided as well as avoiding overpayments. The tax professional can also review the owner's retirement plans and offer suggestions to reduce taxable income.
One last item for a mid-year review is to re-evaluate the business entity. Small businesses often start out as sole proprietorships or partnerships, and transition to LLCs, S-Corporations or C-Corporations. The reasons for doing this include sheltering the owners from taxes and financial risk. If business income has increased overtime and circumstances have changed, it is essential to discuss the options with a tax advisor or attorney. Owners of S-Corporations should have a professional review their salaries versus their distributions to ensure they avoid higher taxes and increased audit risks. When tax time rolls around next year, the mid-year review should prove well worth the effort and expense.
Gordon Smith is a business specialist at the Small Business Development Center at Clovis Community College.