Conduct a Mid-Year Tax Strategy Audit
Learn best practices in how to assess and adjust your tax strategies, and reduce financial liability for your business.
Don’t wait until the end of the year to think about your tax planning and strategies.
If you’re already seeing major changes in your business and/or personal taxes, you must prepare to assess and shift your tax strategies now. That way, you can protect yourself and your business from unnecessary tax liability.
Business owners that fail to assess and adjust their tax strategies often end up paying more taxes than they should. While it’s hard to determine exactly how many businesses are losing out on tax savings they’re legally entitled to, most strategy audits present new opportunities to reduce tax liability.
It’s safe to say that a mid-year tax strategy audit can present tremendous benefits for a business.
What Is a Tax-Strategy Audit?
A tax strategy audit is a close examination of a business’s tax processes and internal controls to help the business proactively deal with changes and ensure that the right decisions are being made now — before taxes come due.
Businesses can help reduce tax liability by having the right strategies in place. An audit makes sure those strategies are working for the business, helping it take advantage of all of the deductions available, as well as minimizing the bottom-line total used to calculate the business’s tax bill.
A tax strategy audit starts with a close examination of a business’s financial records and tax documents.
The business leader will want to come prepared with key information, including knowledge of recent business changes — new employees who have started, employees who have left, changes to leases or property that was bought or sold, new equipment that was adopted, and anything else notable that may be relevant.
Any of these changes may present a new opportunity for increased deductions or incentives that may be available.
You miss 100% of the deductions you don’t track.
Examine Available Deductions, and Ensure Expenses are Being Properly Tracked
According to the IRS, business management can deduct “ordinary and necessary” expenses from the business’s taxable income to help reduce the taxes the business owes. However, business leaders are often surprised to discover just how much they can deduct. For example, marketing expenses and office supplies may be considered ordinary expenses.
An ordinary expense is common and accepted in the industry, and a necessary expense is helpful and appropriate. According to the IRS, an expense doesn’t have to be absolutely indispensable to the business to be “necessary.” The definition is fairly broad.
Even though an expense may be ordinary and necessary, a business may not be allowed to deduct the expense in the year that it was paid. Business leaders must consult financial and legal experts who can tell them which deductions are available.
During a mid-year tax strategy audit, it’s also important to ensure that the right expenses are being tracked. Even if they can’t be deducted in this calendar year, tracking expenses properly helps ensure they can be deducted in the future. In other words, you miss 100% of the deductions you don’t track.
Review Tax Incentives
Business owners can review new tax incentives that may be available and see if any are a good fit for the business. For example, many tax incentives became available to small businesses during the pandemic as part of the CARES Act and the American Rescue Plan Act. With the landscape for tax incentives shifting fairly often, a mid-year review of available options can help business leaders take advantage of emerging incentives.
Even if a business is not immediately eligible for a new incentive, a general awareness of available incentives can be an asset. As the business shifts and grows, other opportunities may open up. The mid-year tax strategy audit can help a business prepare to realize them.
For more information on tax planning for small businesses in Colorado, contact Hackstaff Snow Atkinson & Griess, LLC, at 303-534-4317 or visit our website. Our Denver law firm offers tax planning recommendations for a full range of taxation issues, including corporate, partnership, nonprofit and individual taxation.
Doug Griess and John Snow of Hackstaff Snow Atkinson & Griess, LLC , are top Denver business attorneys with expertise spanning various industries. Specializing in business law, litigation, intellectual property, tax law, and dispute resolution, John Snow and Doug Griess offer an in-depth understanding and knowledge of general corporate rules and regulations and are a trusted resource for business owners throughout Colorado.