According to the U.S. Small Business Administration’s Office of Advocacy, a small business is an independent business that employs fewer than 500 employees, and small businesses represent 99.7% of all employer firms in the country.
Because of this enormous reach, small businesses may also be the ones hurt most during the recession.
There are three things you can do to position yourself for the long run: tax planning, entity structuring, and board meetings.
Tax Planning and Preparation
Your tax returns for the last three years should be reviewed for accuracies, inconsistencies, audit flags, and potentially overlooked deductions.
An important part of reduction planning is not wasting deductions or making certain elections to take advantage of unused deductions in the future or even carry them back to prior years.
Tax preparation for the April 15th return is not considered advance tax planning. It is merely tax compliance as opposed to voluntary tax reduction planning. Though returns aren’t due until April, they cover a tax year that ends Dec. 31. Some of the best tax-reduction moves really need to be done by mid-November or early December. They often take some advance planning.
Getting a head start in September could make you a lot happier in April, giving you a bigger refund or a smaller check to write to Uncle Sam.
You either pay the IRS, pay a tax preparer, or pay a qualified CPA to come up with some tax reduction strategies.
Entity Structuring and Asset Protection
Entity structuring is the use of a legal entity in an effort to provide asset protection and tax mitigation. It is the essential framework used to help manage cash flow and to allow you to retain revenue that can be reinvested to continue wealth accumulation.
There are three factors to consider in forming an entity: legal liability, tax reduction strategies, and ease of compliance. You will need to look at your business strategy and match it to an entity structure that best fits.
Many start-up entrepreneurs make the mistake of trying to go after too broad a market. You need to develop a niche market for your business and then find a structure that fits that niche. Remember, as a small business owner, you want a structure that minimizes your exposure to self-employment taxes.
If you already have an entity set up, do you have an EIN number from the IRS, an operating agreement, a separate business bank account, and a workable bookkeeping system?
Business Analysis Meetings
Most wealthy privately held businesses form the “Alternative Board.” The Alternative Board® (TAB) brings business owners, CEOs and presidents of non-competing businesses together to discuss challenges and opportunities. Board members exchange ideas and practical advice with other experienced business owners who have the ability and the interest to contribute meaningful solutions.
TAB members lead businesses with annual revenues ranging from $1 million to more than $200 million, have anywhere from four to more than 300 employees. The goal of the board is to
- Get crystal clear on how your business is doing today
- Identify where you want to go with your business in the future
- Discuss the steps you need to take and strategies you need to implement to get there.
If you are a small business with revenues of less than $1 million, this may not be accessible but you still need to reap the benefits. Consider working with a CPA or other business owners to form your own board.
Implementing any of the strategies mentioned above will position your small business to survive the economic crisis and set you up for long-term success.
- Jen Consalvo gives you a pre-launch checklist for your small business
- Thursday Bram’s interview with the Tax Girl over at Grow Smart Business
Image: Alex Indigo via Flickr, Creative Commons
Ebere Okoye is the CEO of Wealth Building CPA and has been a Certified Public Accountant for 15 years. She holds a B.S. in Accounting and MBA from the University of Maryland. Her unique areas of expertise give her an in-depth understanding of the mistakes individuals and businesses make in their tax planning and investments. You can reach Ebere via email at info [a] wealthbuildingcpa [dot] com, on Twitter, or via her website. Mention WomenGrowBusiness.com for a free initial consultation.