It’s getting to be that time of year again. Summer is coming to a close…kids will be back in school…and you will have the time to start thinking about more important things – like your taxes! There are now 7+ months of financial data to pull from to start formulating a plan for your 2016 taxes before year end. This should be just a start to the process we can monitor with you through December (and in some cases, January 2017).
The first step in the process is to start thinking about paying in the 3rd quarter estimated tax payment that is due September 15th. Have you made any estimates this year? Have you been paying in safe harbor estimates provided by your accountant last tax season? Your answer will dictate your next step.
Safe harbor tax estimates are based on prior year tax liabilities so if your business or income is different this year, you may owe more or less than you did last year. If you determine that you have been overpaying, decrease the next estimate and keep some of that money in your pocket. And if you have been underpaying, partly catch up now and partly in the 4th quarter to lessen the cash flow burden.
Here is the estimate schedule for the entire year:
Payment Period————————— Due Date
January 1 - March 31 ———————April 15
April 1 - May 31—————————June 15
June 1 - August 31———————-September 15
September 1 - December 31————January 15
In addition to keeping up with your tax liabilities, it is also time to start thinking about tax planning. Too often when we mention tax planning, clients just want us to save them from paying tax. But tax planning this time of year can be so much more! We often like to tell people that taxes are the forgotten expense. They don’t show up on your P&L and they don’t reduce your future tax burden, but they sure as heck reduce your cash flow. The opportunities tax planning presents are 1) what to expect for a tax liability, 2) discuss options for reducing your liability, 3) identify when taxes need to be paid and 4) brainstorm how it can be paid. By starting the planning process now and not waiting until December, you will have choices in how and when you can pay for those taxes.
The important thing to remember is that having choices is a good thing. Hopefully with this easy proactive approach, paying in some tax now will leave enough cash available to fund your business or fund your personal pocketbook. Cash flow becomes manageable and it isn’t such a heavy burden. Paying taxes isn’t any fun, but it is a much easier pill to swallow when you don’t have to pay the entire bill with one check.