With 2013 almost over, it’s time to focus on 2014 and get the year started off right. Here are some actions to take now or in early January that will help you optimize your tax and financial results for the coming year.
1. Revisit your recordkeeping practices
Records are vital for both business and tax purposes. They help know whether or not you’re profitable and provide key information to help you take business actions, such as adjusting prices, cutting expenses, or raising money.
What’s more, in order to take all the deductions and credits to which your business is entitled in 2014, you’ll need good books and records. Often business owners fail to pay attention to this detail until it’s too late and the IRS is questioning write-offs claimed on a return.
Set up a recordkeeping system that satisfies tax law requirements, and make sure that employees know what to do. Check IRS Publication 583 for details on recordkeeping rules for tax purposes. Consider using apps that can help with recordkeeping, such as those for capturing receipts for travel and entertainment expenses. Some may be available for use with, or provided by, your current bookkeeping software or cloud solution.
2. Note your odometer on January 1
If you use your personal vehicle for business, you can deduct the cost of business driving only if you have the records to back this up. This means noting your odometer at the start of the year and then tracking your business trips regularly.
Again, consider using an app for tracking mileage. Some are free; others entail a modest fee.
3. Review your business plan
Your business plan should include projections for sales and expenses in the coming year. If you haven’t yet updated these for 2014, do so now, advises SBA blogger Tim Berry. The projections aren’t carved in stone, but they serve as a very useful benchmark against which to measure your results.
It’s a good idea to check projections monthly so you can make adjustments as needed in a timely manner. For example, if you’ve been expecting gasoline prices to remain low but they suddenly spike, you may need to reduce another expense, such as advertising, to keep your budget in check.
SBA tools can help you create a business plan.
4. Fix your withholding/estimated taxes
If you work for your corporation, make sure that withholding for 2014 will cover your projected tax obligations. Be sure to take into account the 0.9% additional Medicare tax on taxable compensation over a threshold amount that depends on your filing status (e.g., $200,000 for singles; $250,000 for joint filers) as well as the 3.8% additional Medicare tax on net investment income.
If you’re self-employed, your estimated taxes will have to cover roughly what you expect to owe for the year. These taxes should include not only the additional Medicare taxes if you’re a high-income taxpayer, but also self-employment taxes (to cover your Social Security and basic Medicare tax obligations).
The IRS offers guidance on withholding and estimated taxes in Publication 505; the 2014 version should be available early in 2014.
5. Plan to work closely with your tax and financial advisors
Make it a New Year’s resolution to stay in touch regularly with these professionals. While there are fees for these services, likely they will save you money and trouble in the long run.
The economy and taxes are continually changing. Make it your top resolution to stay informed about new developments that can affect your business and impact your actions throughout the year.