Good cash flow is the life of any company. Few things are more anxiety-inducing than being in the red, which is why increasing your cash flow should always be a priority.
But maximizing your cash flow is easier said than done – especially for many small businesses and sole proprietorships. On average, a business can take up to five years before turning a profit.
Fortunately, there are some tax strategies you can use to keep your cash flow in the black. Even better, some of these strategies can be used throughout the year.
Curious to know how you can make your taxes work for you and maximize your cash flow? Here’s how to do it.
Understand What Your Tax Obligations Are
For some business owners, it can be easy to misunderstand or simply ignore their tax obligations. If you do business in a place where your company doesn’t have a physical presence, this is especially easy to do.
Online eCommerce businesses can often forget this, neglecting to collect the proper taxes. However, they may need to collect sales tax for sales outside of your location.
If you are self-employed or the owner of a sole proprietorship, you also have to consider self-employment tax. This tax includes Medicare and Social Security tax. The self-employed tax rate is 15.3%.
This 15.3% is paid as both an employer and an employee. Unlike a traditional W2 job where you only pay the employee portion, a self-employed individual must pay the 7.65% tax rate as both an employer and employee.
Check the Forecast Throughout the Year
Hopefully, your business will enjoy many years of better-than-anticipated profits. However, that means the amount you owe the IRS will increase. It’s much better to regularly check your projected cash flow and set aside funds based on that.
Your accounting team can prepare regular forecasts for you, helping you evaluate your tax liability. That way you shouldn’t have a surprise at tax time.
One of our many services at Basta+Croop is a quarterly tax analysis. We can generate a near real-time report to help you understand your tax liabilities. Of course, we can also help you maintain or even reduce your tax liabilities.
While most businesses have a general idea of what their tax obligations and revenue may be, it’s always possible to be surprised.
Effective Ways to Manage Your Cash Flow
Finance or Lease Major Equipment Purchases
Purchasing, upgrading, or replacing equipment can be a huge financial burden for businesses. An outright purchase or upgrade can put a drain on any business cash flow of yours. Fortunately, you can use equipment financing to keep your cash flow positive while still receiving your equipment.
Equipment financing involves securing a loan used to purchase business-related equipment. This equipment could be a company vehicle, a printer, office furniture, or any other tangible asset that isn’t real estate. Like any other loan, the principal must be paid back in installments over time, along with interest.
You can either use a loan, and have the equipment serve as collateral for the loan, or you can lease the equipment. Leasing may be a more affordable option. In some cases, a leasing contract may have an option allowing you to purchase the equipment.
For equipment loans, you may be able to deduct the interest paid each month. For leased equipment, you may be able to deduct the lease payments as a business expense for the life of the lease.
If you’re thinking of buying equipment, consider doing it while your credit is good. Then you can open up a business line of credit. This will allow you to borrow money as soon as you need it, and minimize your risk of rejection.
We also advise you to borrow more than you need. That may sound counterintuitive, but you will be grateful to have a reserve fund to draw from when you need it.
Utilize the Disaster Relief Tax Credit
In the event of a federally declared disaster, the IRS has a history of allowing taxpayers to postpone deadlines. Business owners may have penalties for late tax payments waived, provided the new tax deadline is met.
An individual or business can claim losses related to the disaster on their tax return for the previous year. They may need to file an amended tax return.
If a business has been affected by the COVID pandemic, penalty relief may be available for those that have previously filed late returns.
Looking at a local example, the IRS announced that victims of Hurricane Ian in North Carolina would have until February 15, 2023, to file business tax returns and make payments. While most affected individuals will have this relief automatically identified and applied for them, affected taxpayers outside of the immediate disaster area can contact the IRS to request tax relief.
Having your business affected by a natural disaster is bad enough, but not knowing there is help available and stressing over taxes is even worse.
Why Accounting and Tax Services Are Imperative for Small Businesses
Increase Your Cash Flow With Professional Help
Finally, one of the best strategies to maximize your cash flow is to seek help with your tax services. At Basta+Croop, we understand the importance of good accounting and tax services. Tax planning, compliance, and understanding business tax deductions are just a few of the services we offer to help you with your personal or business taxes.
We’re local to Charlotte, NC, but have a nationwide reach. We can even help out international taxpayers with their U.S. taxes.
Give us a call at (704) 251-0110 or complete our contact form. Someone will be in touch within 24 hours.