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Why You Need a Midyear Business Tax Checkup With Your CPA

Nickolas Strain
Nickolas Strain

Learn about the benefits of meeting with your CPA midyear to review your business taxes.

With the summer season quickly coming to a close, vacations and barbecues could be crowding out your business tax planning. However, this is the perfect time to review your business's tax and financial plans with your certified public accountant (CPA). Why is summer the best time to meet with your CPA? Here are some potential benefits:

  • Talking with your CPA now, during their typical slow season, gives you a significant amount of lead time to act on any recommended business or financial changes. Ask if there are opportunities to save on taxes before filing and if there were any changes made under the Tax Cuts and Jobs Act that became effective in 2018 that will affect the way you file.
  • You can review your business income and expenses year to date and your forecast for the remainder of the year. This will enable you to assess and potentially adjust your estimated tax payments for the rest of 2019.
  • Midyear reports and assessments can offer insights into trends and successes, pinpoint possible weaknesses and identify potential problems that may arise. If you're growing, this can help you invest in your business. Alternatively, you might need to take more conservative measures.
  • Organizing your finances now will save you time later when preparing documents for end-of-year earnings and decrease the potential for any surprises.
  • Once you review and discuss your business's financial and tax status with your CPA, you can meet with your internal key people and outside professional advisors (financial advisor, retirement plan advisor, business consultant) to get everyone's feedback.

In my experience, small business owners typically wait until the end of the year to think about their tax returns. Why scramble later when you can check in now and ensure you get the most out of your returns?

There's no time like the present

Have you ever been told that you could have saved on your taxes, but it was too late? Too often, small business owners fall victim to that. Checking in with your CPA can help you avoid tax mishaps and ensures that you make better business decisions for the upcoming year.

Meeting with your CPA at the end of summer will help you form assumptions for the remaining part of the year and develop a detailed tax plan. Every good tax plan involves actionable items that the client should consider in order to minimize their tax liability. Starting this process early gives everyone more time to make decisions and monitor the cash flow required.

CPAs commonly work more than 60-70 hours a week during tax season. During their down season, however, they often have more bandwidth to offer expertise on the past tax season's trends and where they see them heading. Your CPA can identify areas that need improvement or changes. You'll have enough time to implement them and potentially see your tax returns increase when Tax Day comes around.

CPAs will evaluate your midyear point with regard to:

  • Evaluating how first-half performance will affect cash flow and tax planning
  • Analyzing your financial statement to discuss key indicators
  • Identifying potential investments in specific areas of your business that could help create growth and tax deductions
  • Providing feedback on how the new tax laws affect you, including the 20% business income deduction, 100% bonus deductions, changes in the deductibility of entertainment expenses and meals, your current marginal and effective tax brackets, and the potential loss of state and local income tax deductions
  • Reviewing projected net income and possible retirement plan contributions to help you decide whether you should defer more income to decrease your overall tax liability for 2019 and future years

CPAs can also help assess the success of your business goals by comparing your year-to-date revenue with the same time period for 2018. You may find that the business isn't achieving goals or growing at the rate you expected, in which case, you'll need to find out why and determine how to make changes. Knowing this information now impacts your decisions and goal-setting going forward.

In the same vein, your business may be doing better than projected, but you can still benefit from feedback on ways to keep it on track.

How do I save on taxes?

This is the most commonly asked question I receive from business owners. The best approach? Start asking it of your CPA, financial advisor, retirement plan consultant and industry peers to generate ideas and learn what has worked for other businesses. For example, our new tax laws have new rules that provide tax incentives to reinvest in your business.

Does your business have significant growth or net cash flow that you don't want taxed? One option might be to utilize retirement plans that go beyond a traditional 401k plan, such as cash balance and defined benefit plans. These can allow you to defer income of $100,000 to $200,000 per person every year, depending on your age and income.

If you and your spouse co-own a company, you can potentially defer $200,000 to $400,000 into a cash balance or defined benefit plan depending on your income levels. If these funds would have been taxed at the highest federal tax bracket of 37%, you could be saving 40% or more because you're not paying federal taxes, plus potentially any state income tax you might owe on these deferred funds.

You can also reap tax savings by investing in your company, including tax-advantaged preparations for a sale or purchase. Here are some ideas:

  • Your CPA can help you look at tax strategies that you'll want to put in place before year-end. This includes your asset budget for this year, such as getting that piece of equipment in time to access the 100% deduction.
  • Are you planning a large transaction? Your tax advisor can help you seek alternative structures for optimal tax savings.

Quarterly estimated tax payments

Don't waste money by paying underpayment penalties to the IRS or your state. Estimated tax payments are due four times a year, and the next one is approaching in September. Meeting with your CPA now allows you to readjust your estimated tax payments based on how your year is developing.

Getting ahead and getting organized

Record-keeping throughout the year can be a tedious process, but it will benefit you later when tax season arrives. A midyear review with your CPA gives you time to prepare and organize documents and gather your tax deductions, expenses and receipts. It also helps you figure out who owes you money. Careful, ongoing record-keeping helps you make better business decisions and create more success within your business.

In summary, I'm not recommending that you skip that vacation to the mountains, beach or Europe, or decline the neighborhood BBQs, but reviewing your midyear financials is always a great move. Scheduling time to meet with your CPA to review your year-to-date financials helps you plan for the rest of the year, and determine what actions you can take to improve your business and reduce taxes. You'll also be able to confirm you're making the appropriate amount of estimated quarterly tax payments.

Your access to more accurate information, in turn, is critical to helping you accomplish your personal and financial goals, whether you're making decisions on your own, with your internal key people, or in working with your other professional advisors.

Image Credit: Natee Meepian/Getty Images
Nickolas Strain
Nickolas Strain Member
I am a Senior Wealth Advisor at Halbert Hargrove, a fiduciary investment management and wealth advisory firm servicing over 600 clients and managing more than $2.3 billion in assets. My focus is helping clients determine goals and identify financial risks and create an allocation strategy for their investments by addressing a broad range of their financial concerns, including retirement, insurance, and estate planning. I graduated with an MBA from UC Irvine and earned a Bachelor of Science degree in Management Science from University of California, San Diego. I have previously been awarded the ACCREDITED INVESTMENT FIDUCIARY™ designation by the University of Pittsburgh-affiliated Center for Fiduciary Studies, and a Certified Private Wealth Advisor (CPWA®) certification from the Investment Management Consultants Association. I am also CERTIFIED FINANCIAL PLANNER™.