This is the time of year many business owners meet with their tax planners to get an idea of what the tax bill will look like come April. Frequently, the tax planner advises the owner to spend before year end in order to reduce taxes. It is obviously more enjoyable to spend money on a new laptop versus paying income taxes. We caution our clients to keep the big picture in mind before going on a spending spree.
A business owner should consider what are his/her cash flow needs are now and in the near future? If you spend the money now to avoid paying higher taxes, will you have the cash you need to pay your rent, cover payroll and pay yourself? Employing strategies to reduce taxes are great as long as they don’t create cash flow issues.
Meeting with your tax accountant on a regular basis will help monitor taxes and control cash flow. It is easier to deal with a growing tax burden throughout the year rather than getting panicked at this time of year and making rash purchases to reduce the tax bill. A business owner will still need money in April to pay taxes so spending too much can backfire.
Being proactive always puts you in control more than being reactive!