For most small business leaders, interactions with a tax advisor occur exclusively between the months of January through April when they are filing a return. Throughout the rest of the year, it unfortunately is quite common for leaders to neglect the valuable insights that tax accountants can offer regarding major business decisions.
Most business transactions or withholding elections have major impacts on filings when deadlines come around. Bringing in a tax accountant to offer guidance from the start of these financial decisions can ensure that leaders are optimizing their potential return and ensuring that they will not be receiving a substantial bill from the government when “tax season” rolls back around.
Two of the major business decisions that have the potential to majorly impact tax filings are withholding elections and business mergers, acquisitions and sales.
Here are the ways that tax accountants can offer helpful guidance throughout these processes to ensure the 2022 filing season goes smoothly:
Determining Withholdings
It may seem simple but choosing the right withholding amount can make all the difference in your filing. Thankfully, tax advisors can guide leaders through the proper withholding amount to ensure that April 15 does not come with any surprises.
For example, if a leader decides to withhold too little and spend all their income, they may be subject to a large tax bill in the spring. On the other hand, if they withhold too much, the government is essentially receiving a free loan from the business throughout the year. This can be detrimental to most small businesses where every cent of revenue is critical for operations.
The key is finding the “sweet spot” that will maximize take-home revenue throughout the year while minimizing the potential for due taxes in 2023. A CPA that is well-versed on a business’ needs and operations can help to ensure that the ideal amount is withheld to maximize benefits to the business.
Making a Business Purchase
Even more significant to an annual tax filing is the acquisition or sale of a business. CPAs should be engaged from the start of negotiations of a purchase or a sale to ensure leaders understand the full scope of the financial implications of these major transactions.
For example, when making a purchase, a business owner may share an impressive figure as their annual income and offer an attractive payment structure for the purchasing of the company. While this may entice a leader to finalize the deal right away, CPAs know the right questions to ask to identify any red flags or negative financial implications.
These questions may include asking about the assets that will be included in purchase, inquiring about any liabilities or probing into receivables. The answers to these questions may very well impact whether a leader chooses to proceed with the purchase at all.
Bringing in a tax accountant to offer guidance from the start of these financial decisions can ensure that leaders are optimizing their potential return and ensuring that they will not be receiving a substantial bill from the government when “tax season” rolls back around.
CPAs also demonstrate value in their deep understanding of purchase structures. For example, it is important to understand the implications of purchasing assets or purchasing stock. Whichever option is chosen will impact whether a small business leader pays more tax on the purchase now (assets) or later (stock).
If leaders fail to include a qualified tax advisor in the purchase, they may be shortchanging themselves in more ways than one.
Every transaction in which a small business leader engages has a consequence—even more so than larger businesses with more financial security. These tax consequences—large and small—can be avoided by consulting a CPA before finalizing a deal or deciding on annual withholdings. If not, improperly designing a transaction or investing in the wrong asset may have negative financial ramifications that are detrimental to business.
No matter the time of year, any time there are financial decisions and transactions being made, small business leaders should give their tax advisor a call and make sure they are on the right track.
Cheryl Prout is a partner of The Bonadio Group in the Small Business Advisory practice. Cheryl is also a co-leader of the firm’s Estate, Gift and Trust team, as well as a member of the Outsource Accounting Team and the Real Estate Team. She brings nearly 30 years of experience to the firm.
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