As a business owner, it's your responsibility to understand tax – its basics at the very least – because that’s part of managing your business.
- Factor in the costs.
Unless you have the profit-first mindset, it’s easy to forget that you’ve got to put back reserves for your tax. But here’s a hard fact: The IRS isn’t going away – it never will. So you can’t expect that you’re not going to have to pay tax because you will. Instead, your goal should be how to legally minimize your tax.
- Make the plan before the money gets here.
There are all kinds of stuff that's going to start showing up once the money gets here. And it’s the surprises that can really hurt you. Therefore, you have to deal with it now or it will hit you like a ton of bricks once the IRS is ready to collect what’s due to them.
- Track your inventory (for eCommerce people).
Inventory management is absolutely both a process and a skill. You have to start planning for Q4 in advance because the last thing you want is to be in the middle of Q4 and things are falling off the shelf due to poor inventory.
- If you’re pre-selling memberships, consider accrual-based taxpayer.
If you are an accrual-based taxpayer, you can show that money as a prepayment since you haven't earned it yet. But as a cash basis taxpayer, which is what most people are for tax purposes, you will have to count it as income. Unless you switch to an accrual-based taxpayer, you can't avoid it at that point.
- Timing is critical.
Your goal is to have everything planned out by Q3 (September 30). That way, you’re in a great position to know what your business is actually doing.
If you want to learn more about income tax planning, check out 013: Income Tax Planning For Your Next Big Quarter or Launch
