Running a small business requires constant forecasting and planning to ensure you are prepared for both anticipated and unexpected changes. Planning for change is not only important for aspects of your business like revenue, expenses, sales, inventory, capital and cash flow, but also for taxes. Projecting the impact of taxes is essential.
Similar to a financial forecast, the purpose of projecting taxes is to analyze the tax implications that changes in your business strategies or tax law may have on your company. By running different scenarios, you can evaluate potential tax benefits or consequences and apply that information to make sound decisions from a tax perspective.
When is the right time to run a tax projection? At least once a year, generally at the halfway point between when you last filed your businesses taxes and the current tax year. However, a tax projection can be beneficial any time you or your business experience a major change in your finances.
Benefits of Tax Projections
1. Avoid Tax Surprises
Tax projections can help small business owners avoid high and unanticipated tax bills and help avoid costly errors and underpayment penalties. This is especially critical when significant tax law changes go into effect. Over the past few years, for example, the CARES Act, the SECURE Act and the Tax Cuts and Jobs Act all included changes that called for a fresh look at tax projections.
2. Make Smarter Decisions
As your small business grows, so will your tax liability. It is important to mitigate your tax burdens by performing tax projections and employing proper tax planning practices. If you are considering material changes to your business, like a change in your business structure, business model or personnel, tax projections can show you the impact of these changes so you can make sure they are both strategically beneficial and tax efficient.
3. Inform Personal Financial Planning
Tax projections are important not just for your business, but for your personal financial plan as well. Working with a professional advisor, tax projections can inform income tax reduction strategies, retirement planning strategies, gift and estate planning, and charitable giving – all part of the holistic approach to financial planning.
Working with a Tax Expert
For busy business owners, running tax projections can be daunting and take you away from managing and growing your business. Tax projections also require specialized knowledge and expertise in business structures, accounting and tax law. That’s why it is wise to turn to a small business accounting and consulting service team like Gift CPAs. With experience working with a wide variety of small businesses and non-profit organizations, our experts can produce tax projections and put your business in the best possible position from a tax perspective. Our accountants and tax specialists also can examine how your tax projections fit into your overall financial goals and find ways to free up capital to reinvest in your business.
Get Connected Today
Contact Gift CPAs for more information on our full scope of accounting and business services. We have years of experience working with small businesses to help with bookkeeping, taxes and other business needs. Make an appointment to meet virtually or at one of our five locations in Harrisburg, Mechanicsburg, Myerstown, Ephrata or Lancaster!
