How to Budget for Your Business Taxes All Year

female consultant reviewing plans for Business taxes

As a business owner, paying taxes is one of the most important financial obligations you have to meet. Taxes are inevitable. You know the old saying, the two things you can always count on are death and taxes.  

Whether you’re just starting your business or have been running it for a while, it’s crucial that you budget for your business taxes all year long to avoid getting overwhelmed when tax season arrives. Unfortunately, most entrepreneurs wait until tax time to scramble and sort out their finances to pay their taxes. This approach can lead to missing out on deductions and paying excessive taxes. 

Maximum Possibilities recommends that you engage with a qualified tax CPA on a semi-annual basis at a minimum.  We can help you with this advisor to elp you prepare throughout the year, so you don’t have any surprises when it’s time to complete your taxes. We will share with you how to budget for your business taxes all year round.  

In this post, we’ll guide you through steps that can help you create an effective budget plan for your business taxes. 

Estimate Your Tax Liability 

The first step in budgeting for your business taxes is to estimate your tax liability 

Consider the following factors:  

  • business structure 
  • industry 
  • location 
  • income 
  • expenses 
  • deductions  

It’s important to research local, state, and federal tax requirements to know the types of taxes you need to pay. Some common types include income tax, sales tax, payroll tax, self-employment tax, and property tax. 

Calculate your Income and Expenses 

Budgeting for taxes requires you to understand the financial state of your business. It requires an accurate Profit and Loss Statement and a dynamic forecasting capability.  

To do this effectively, you will need to calculate your income and expenses accurately. This will give you an idea of your taxable income and how much you can set aside for tax payments.  Note that some deductions are calculated differently for tax and book purposes.  This is an area that your tax CPA can help identify.  

You can claim deductions for expenses that are necessary for your business. Make sure to keep receipts and records for your expenses in accordance with IRS guidelines. You can also use accounting software to track your expenses and generate reports, thus making it easier to prepare your tax return. 

Review Your Budget/Forecast Regularly 

It cannot be overstated that you need to monitor your budget regularly with a dynamic rolling forecast. Forecasting is an ongoing process that requires monitoring and adjustment as factors change. Regularly track your income and expenses and adjust your financial plan for changes in revenue or expenses.  

Meeting with a financial advisor to discuss your business finances is also beneficial. Monthly reviews of your budget and P&L with your advisors and chief financial officer will help you identify any changes in your income or expenses that may affect your tax liability. Then you can adjust your forecast accordingly to ensure that you are setting aside the right amount for your taxes. Consider both operating and cash flow forecasts.  

Regular review of your business budget and forecasts helps you avoid that sinking feeling you have if you wait until it is time to prepare your taxes, only to discover unexpected liabilities that you are unprepared for. 

Don’t Forget About Estimated Tax Payments 

The IRS expects taxpayers to pay taxes quarterly if they expect to owe more than $1,000 in taxes annually. As a business owner, you have to make quarterly tax payments or face penalties depending upon the state your business is in. Therefore, it’s essential to factor in estimated tax payments into your budget plan to avoid penalties. 

Consult with an Accountant or Financial Advisor 

An accountant or financial advisor can be a valuable resource when it comes to budgeting for your business taxes. They can help you estimate your tax liability, identify deductions, and keep track of your expenses. It is essential to work with someone familiar with your business structure and tax laws. 

Preparedness Equals Peacefulness 

Budgeting for business taxes all year round is crucial for business owners to avoid tax-related financial stress and penalties. It can also save you time and money in the long run.  

By setting up a separate tax account, calculating income and expenses, and regularly monitoring and adjusting your budget plan, you can be better prepared to meet any tax obligations–not overpaying taxes or missing out on any deductions. 

If you’re worried about the tax liabilities for your company, let’s talk. Contact us to learn how we can help relieve your stress and get prepared for the inevitable.  

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