This is a pretty safe topic in the month of December, because the vast majority of American taxpayers are reporting their income in the calendar year.
If that sounds confusing, it might be because you’ve never considered another option, which is fine by me.
If you use a fiscal year (anything other than calendar), such as beginning April 1st or June 1st, it gets messy.
It might be totally necessary in your case, but I do not have any clients currently using anything but the calendar, and I like that just fine.
One huge consideration is if you’re married, you’re dragging your spouse along for a bumpy ride through your oddball year, too.
And it’s a pain to switch back. You have to do a bunch of forms filing that basically works out to having to ask the IRS’s permission to do it.
So…the calendar year. The last month of which is right now, December.
We’re in the process of trying to remember everybody we want to make sure will get a gift from us to open, but in the world of business there are some key bases you need to be touching this month.
You are about to know exactly how much your business profited in 2022. In about 3 weeks.
The good news is that you can project it at this point, and you might want to do that, and get some review of your tax situation on your calendar for the first week of January as well.
As a small businessperson, and I cannot stress this enough (repeatedly!), you have a duty and a responsibility to estimate your taxes four times a year, and make a payment.
I call this The Entrepreneur’s Withholding.
If you’re just finding our humble little blog, you’re in a business that makes enough money that you’re going to owe over $1,000 come April, and you don’t know what I’m talking about?
Listen up!
You have one big fat final chance to make a payment, the 4th Estimated Tax deadline in January.
This year it lands on Tuesday, January 17th.
You want to estimate your tax without going into all the mind-numbing detail of actually filling out a return, and pay as much as you can to get within that $1,000 number.
Why? You owe more if you don’t. It’s called underpayment penalty.
But, the even better reason is that this is a habit and a routine that you need to develop, starting now.
Your infernal residue service insists they’re a pay-as-you-go system, and they’re actually doing we entrepreneur’s a left-handed solid, when you think about it.
We don’t have to have our taxes carved out of every single pay event like an employee. Just four times a year.
I got comfortable telling myself some time ago that they’re actually treating us like adults, and I deal with it.
Because let’s face it ladies and gentlemen: if you’re a business owner you are 100% responsible for all of it.
Happy customers, current accounts payable, and taking care of your damn taxes.
We hate them, and we forget about them because nobody’s standing behind us with a cattle prod making us do it.
Oh no, in fact the IRS loves it when you’re late, whether the government employees I talk to on the phone will admit it or not (most likely, not).
Why? Because their punitive measure is to hit you up for even more money.
Penalties and interest.
They also want you to forget to file for your refunds because of the rule that you are not allowed to after 3 years.
Do you know how much the federal government takes in annually in abandoned unclaimed refund monies?
It’s typically $1.5B. 1 ½ billion dollars, with a B. $1,500,000,000.
Jesus wept.
Make no mistake, the discretionary budget of the federal government is fueled by IRS, which means Congressional, punitive measures every bit as much as by the base taxes owed.
To wrap up this first point, then, if you start thinking and planning now you can save yourself hundreds, even thousands of unnecessary wasted dollars.
I do NOT like to see anyone pay a single dollar more than they have to. I don’t believe they’re responsible with it, for one reason.
Other Non-Tax Points
Taxes are extremely important to budget and account for, but they’re not the whole picture.
Thank God.
You have an entire profit & loss (aka income statement) full of categories for your review.
When I analyze a financial report, I look for trends. Most of this is kind of common sense, and the numbers tell a story.
Do you have more advertising some months than others? Do you remember why?
This is where it really, truly helps to have working accounting software that interacts with the user easily.
Another biggie is SaaS, which stands for Software as a Service.
When’s the last time you reviewed your “tech stack,” and made sure you still need everything you’re paying for.
These tend to be nickel-and-dime monthly recurring charges that are easy to forget about, and you could be hemorrhaging cash there.
Final Thoughts
December is a most wonderful time of year, certainly because of the glowing and “mistletoeing,” but also because it is a ripe opportune time to get a firm grip on how your business is doing.
Are you a real estate investor, and you crave the kind of help that finds hidden money in the business you’re already doing as well as saving thousands of dollars on unnecessary taxes?
We should talk about that! We are still able to take up to two new transformational advisor clients before December 31st.
Those slots will go quickly, so let’s talk. Soon!