If you complain about paying taxes, and who doesn’t, then you need to take steps to limit the pain next April. Yep, you should always make adjustments to your finances at the end of each year.
People are unique and so are their financial situations. Whipping your finances together at the end of the year is really a matter of deducing what type of year you had. If you are a salaried employee of a business, you taxes are going to be fairly simple as are the financial moves you need to make. A business owner, on the other hand, is going to be dealing with a much more complex situation. Let’s take a closer look.
As a salaried tax payer, you are both fortunate and unfortunate when it comes to taxes. On the fortunate side, you really do not have to do much to address your tax situation. On the unfortunate side, this is because you are really restricted in regard to the steps you can take to limit your tax bill. Foremost among these steps is to maximize your contributions to pre-tax retirement vehicles such as a 401(k) account. If you have yearly bonuses coming up, try to jam them into your 401(k) so you don’t end up owing in April. In addition to this step, you should go through all your finances and deduce whether you can create any tax deductible expenses to offset your income.
If you own a small business, you already know things are a bit more complicated. In this case, you want to try to limit the profit of the business to minimize both your income tax and your self-employment tax. If you are on a cash basis accounting, are there any expenses you can take now instead of January. For instance, can you buy new computers or whatever you are going to need? So long as the expenses are legitimate, you can use this tactic to minimize your taxable income.
If your small business is complex or you own a larger business, you should really take a common sense step. That step is to sit down with a certified public account and discuss your situation. He or she can give look at your finances and offer specific steps that can be taken to reduce your tax bill for the year. The key to this approach, however, is to make the time to sit down with the accountant NOW! If you try to show up on December 30th or in January, you are limiting your options and hurting yourself.
I have a general rule when it comes to taxes. If you want to complain about the amount you pay in April, you can only do so if you take every step to limit them. If you do no planning, you can only blame yourself for the huge tax bill you end up with in April.