Subtract your expenses (yellow) from your profit (blue) and pay taxes on the rest.
Don’t spend your money, invest your profit.
I’ve had a few business owners tell me that they finished off their year by moving all their money out of their checking accounts so that they don’t have to pay taxes on it. That’s not how it works!
You pay your taxes based on the amount of PROFIT you made, not how much money is left in your bank account. Run a P&L and compare your total income minus expenses. Whatever’s left is the amount you pay taxes on. It may be tiny and it may be enormous…and it won’t match your bank account at all. It’s not supposed to.
To reduce your tax liability, BEFORE DEC 31 make additional equipment purchases that will help you grow your business the following year.
As always, I recommend also paying off credit card bills and loans, not because this reduces your taxes (it won’t), but because you will pay less interest, reducing the cost of the purchase over time.
Do you have employees or hire subcontractors? You’ve got a lot of paperwork to do by Feb 1!
Here is a helpful checklist Intuit published that will also help you make sure to file all your paperwork in time:
Checklist for the End of Your Small Business’ Fiscal Year.
Get your books ready for taxes!
Do you do your own books? Make sure your accountant or your bookkeeper goes through all your transactions to make sure they were classified properly into the right accounts. There’s nothing worse than finding out you were entering things wrong AFTER your taxes were filed.
If you don’t have someone to do that for you, please call me. I can come to your office and do any year-end cleanup so that you can go to your accountant with confidence.
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