In This Episode
One of the annual traditions of business ownership is making some tax planning decisions, usually late in the year. It includes things like buying equipment or vehicles to take advantage of accelerated depreciation through a Section 179 tax deduction or some other accounting jargon. But those aren’t really the surprises we’re talking about. We’re talking about those surprise tax bills you get from your CPA where you have less than a couple of weeks to come up with significant cash to pay your bill.
We wish this was an unusual thing, but our experience tells us differently. There are too many small business owners we’ve met and coached over the years who have been the “beneficiary” of some of these tax surprises. Quite often these surprises have resulted in business owners borrowing money to pay their taxes. Wait, what? Yes, that’s right, people are borrowing money to pay their taxes. And way too often the CPA delivers this “good” news with a smile on his face because you’ve had “such a good year” which is why you owe taxes.
But it never feels good to pay taxes. Especially when it’s not in the plan. So what’s a small business owner to do? We usually start with a Cash Forecast that shows where all the money is coming from and where it’s going. The goal we have with our clients is to pull together a 90-day Cash Forecast. This provides you with a 3-month heads up on any cash flow problems so we can avoid these surprises. We also encourage our business owner clients to speak with their CPAs on a more regular basis (e.g. at least quarterly or twice per year).
Keep in mind that 2020 has been a very unusual year and there will likely be a lot of questions between now and tax day. The good news is you have some time between now and April 15th, but don’t wait too long to get your plans in place or else you might be in for a tax surprise come April!
People, Companies and Resources We Mentioned in the Show
- CARES Act (https://home.treasury.gov/policy-issues/cares)
- Paycheck Protection Program (“PPP”) (https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program)