As we pass the midpoint of the year, it's an ideal time for businesses to conduct a mid-year tax check-in. This proactive approach helps ensure that your business is on track with its tax obligations and can make necessary adjustments before the end of the year. Here’s a guide to help you navigate your mid-year tax review effectively.
Review Financial Performance and Evaluate Estimated Tax Payments
Assess your year-to-date income and expenses to understand your business’ financial position. Compare these figures to your projections and budget to identify any significant variances. This review helps determine if you need to adjust your financial strategies for the remainder of the year. Pay attention to revenue trends, operational costs, and any unexpected expenditures. Identifying these early can help you make informed decisions that can positively impact your tax position.
Review your estimated tax payments to date and compare them with your expected tax liability. If your business’ income has increased significantly, you may need to increase your estimated tax payments to avoid penalties. Conversely, if your income has decreased, you might be able to reduce your payments. Ensuring that the amount being paid is appropriate for your projected year-end tax liability helps avoid underpayment penalties or a large tax bill next year.
Maximize Tax-Advantaged Business Strategies and Plan for Deductions and Credits
Consider investing in new equipment or technology before the end of the year to take advantage of Section 179 expensing or bonus depreciation. These provisions allow businesses to deduct a significant portion of the cost of certain assets in the year they are placed in service, reducing taxable income. If your business is involved in developing new products, processes, or technologies, you may qualify for R&D tax credits. These credits can significantly reduce your tax liability and are often underutilized. Reviewing your activities and documenting eligible expenses can help you take full advantage of this opportunity.
Review your business expenses to ensure you are maximizing deductions for ordinary and necessary costs such as rent, utilities, supplies, and salaries. Keeping detailed and accurate records of these expenses is crucial for substantiating your deductions. Additionally, if you have hired employees from certain targeted groups, your business may be eligible for the Work Opportunity Tax Credit (WOTC). This federal tax credit is designed to incentivize the hiring of individuals who face significant barriers to employment, providing a valuable tax savings opportunity.
Conduct a Financial Health Check and Prepare for Year-End Reporting
Evaluate your current debt situation, including business loans, credit lines, and other liabilities. Consider strategies for paying down high-interest debt to improve your business’ financial health and reduce interest expenses. Ensure your business has adequate liquidity to cover unexpected expenses, which can prevent the need to take on additional debt or make withdrawals from investment accounts prematurely, impacting your tax situation.
Start organizing your financial records to prepare for year-end reporting. Accurate and organized records make the tax filing process more efficient and can help identify any discrepancies early. Ensure all income and expense records are up to date and properly categorized. Consider investing in accounting software or consulting with a bookkeeping professional to streamline this process.
Consult with a Tax Professional
A mid-year tax check-in is an excellent opportunity to consult with a tax professional. They can provide personalized advice based on your business’ unique financial situation and help implement strategies to minimize your tax liability. A tax advisor can also keep you informed about any changes in tax laws that may affect your planning.
At Baldwin CPAs, we are dedicated to helping businesses achieve their financial goals with expert tax planning and advisory services. Our team is here to assist with your mid-year tax review and provide guidance tailored to your needs. For more information or to schedule a consultation, click here.
