Tax time is coming up, and it’s worth taking a look at your business records now so that you are prepared to send your 2016 records to your tax preparer come January.
It’s also a good time to think about your tax strategy.
Conventional wisdom is to maximize deductions and business losses and to minimize income. While this strategy results in lower tax bills, it may not be the best strategy for your business. Choosing the best tax strategy involves some advance planning and goal setting.
If your personal goals include buying a home or if your business goals include courting investors or seeking funding to meet your goals, then think carefully before minimizing your business income to avoid tax liability.
You may be outsmarting yourself out of your goals.
Mortgage companies tend to view the self-employed as high risk. Self-employed mortgage seekers must jump through more hoops than their counterparts who are employed by large companies. Mortgage lenders want to see a history of income stability. If your small business has taken a loss in each of the preceding several years, it will be hard to get a mortgage.
The same goes for financing to grow your business. Lenders are looking for credit worthiness and stable income – not a brilliant tax strategy. Don’t let your brilliant tax strategy compromise your ability to meet your goals.
Have a frank discussion with your tax preparer in advance if your business or personal plans include getting financing in the next 2-5 years.