Happy Business New Year!!! OR NOT?
One of the important decisions in starting a business is establishing the “tax year” for a business. What is a “tax year”? According to the IRS “A “tax year” is an annual accounting period for keeping records and reporting income and expenses.”
The two choices are calendar year or fiscal year. The calendar year begins in January. If you chose the fiscal year then Oct. 1 begins the business’ new year. It is time to close the business books, determine your annual income tax obligations, end the quarter, etc.
At the end of the year other types of changes can be made such as choosing a new business structure. Are you a sole proprietor and need to review the limited liability benefits of an LLC or Limited Liability Corporation? Or is the business an LLC and given the number of employees should you consider the tax structure of an S Corp?
Preparing for the end of the year no matter the date can be a daunting task. Decide this year to develop a process with the business’ book keeper or accountant to stay on top of this in 2020 by monthly and or quarterly financials. These periodic “check-ups” will not only lessen the end of the year’ anxiety but will provide pertinent information for managing the business with higher profit margins throughout the year.
Yes, higher profits mean higher taxes but without profits on the books you do not have a business, you have a hobby. Remember hobbies do not have tax deductions nor are they sold by business brokers to finance retirement. Preparing for the end of the business year is important but not developing a strategic plan for the new year may be deadly.
Businesses die or close everyday in our area? Why? The area is growing in many of the economic indicators from number of people, number of schools, new and expanded roads to sales tax dollars collected. It seems to be the old saying, “Failing to plan is planning to fail.” This includes those that are retiring that needed to sell their business but have nothing to sell because of the lack of planning resulting in closing the business.
Welcome new business habits by planning for success in the New Year! Whatever “success” looks like to you.