Who likes to owe money back in taxes? At face level, the answer is nobody. As you start your journey as a small business owner, you want to hold onto as much revenue as possible. Taxes can seem like an abyss of the unknown - or even the enemy.
However, owing business taxes can be indicative of some good things. The real obstacle is figuring out how to strategically minimize what you owe over time. Consider how a monthly accountant can help reduce your long-term tax liability.
For over 50 years, CSI Accounting & Payroll has worked with small business owners to close books, create financial statements, and offer expert advice each month to minimize what is owed in taxes - even if it means paying a little more this year for the sake of saving a lot more next year.
Other business owners who talked to us about tax strategy wanted to know:
- How can owing taxes be a good thing?
- How can I pay more this year to save more next year?
- How can a monthly accountant help me reach my tax goals?
Owing Taxes Can Be a Good Thing
It’s time to change your frame of mind when it comes to business taxes. Once you hear that you can reduce your tax liability, it’s likely to be top of mind when tax season rolls around. However, as you generate more revenue, you’re generally going to owe more in tax.
The only way to get your tax liability to $0 is to make no money - and that’s probably not the route you want to take. Let’s pull a hard U-turn and look into tax strategy instead.
Paying More Taxes Now to Save More Later
One method to save taxes now is to purchase equipment to offset your net income. However, this can present its own issues if you didn’t really need the equipment and have to pay to maintain it. Sometimes it’s better to pay now when you’re making less if you’re expecting to grow.
Let’s look at an example of how using tax strategy one year can offer a smaller benefit than if you had waited for another year.
The Original Situation
You are married filing jointly with a standard deduction of $25,900, assuming 2022 tax rates.
In 2022, you made $100,000 in net income. This puts you in the 12% tax bracket, meaning you’ll owe $8,481.
In 2023, you made $200,000 in net income. This puts you in the 22% tax bracket, meaning you’ll owe $29,536.
The total amount that you owe for these two years is $38,017.
Deduction in 2022
In 2022, you made $100,000 in net income. To offset this, you purchase and deduct $100,000 worth of equipment. $0 in net income means owing $0 in income tax.
In 2023, you made $200,000 in net income. This puts you in the 22% tax bracket, meaning you’ll owe $29,536.
The total amount that you owe for these two years is $29,536. That’s $8,481 saved from the original situation by purchasing the $100,000 worth of equipment in 2022 - provided you actually needed the equipment.
Deduction in 2023
In 2022, you made $100,000 in net income. This puts you in the 12% tax bracket, meaning you’ll owe $8,481.
In 2023, you made $200,000 in net income. To offset this, you purchase and deduct $100,000 worth of equipment. This means your net income is down to $100,000, putting you in the 12% tax bracket again, meaning you’ll owe $8,481 again.
The total amount that you owe for these two years is $16,962. That’s $21,055 saved from the original situation by purchasing the $100,000 worth of equipment in 2023 - provided you actually needed the equipment.
By waiting until you were in a higher tax bracket to purchase the equipment, you saved a considerable amount of money. This is just one example of how tax strategy can help your business.
Monthly Accounting to Reach Tax Goals
If an annual tax accountant does more than just file your taxes, they may also assist in the preparation process. However, this is typically where their services stop. If you make any big moves throughout the year, it can completely throw off whatever they had planned for next tax season.
Monthly accounting is different in that it’s hands-on throughout the year to consistently monitor your money moves. Not only that, but a monthly accountant can offer expert advice based on the financial statements they create for you and the discussions that occur in your meetings.
Speaking of meetings, ones centered around taxes are key. CSI includes the full tax package: planning, projection, and preparation. We typically have two major tax discussions per year, and at the end of each tax planning meeting, you should have a tax projection.
These services make all the difference when it comes to finding the best tax strategy for your business.
Use Monthly Tax Strategy This Year
Owing tax means only one thing: you’re making money. When you’re stuck in the mindset that owing money back in taxes is inherently a bad thing, you’re holding yourself back from seeing the big picture that tax strategy can offer.
In some cases, holding off from saving now can save you in the long run. To find the best tax strategy for your business, you need an accountant who will be in your books on more than just an annual basis. A monthly accountant uses year-round, hands-on methods to reduce your long-term tax liability.
If you’re ready to discuss how closing your books, getting financial statements, and receiving expert advice each month can help strategically minimize what you owe over time, click the button below to schedule a free consultation.
If you’re not ready to have a discussion, it’s important to know the basics of small business taxes:
