Common to many business owners is the concern of paying too much in taxes at year’s end. Consequently, such business owners seek to minimize reportable income in an effort to avoid paying taxes to the federal and state governments. Minimizing your tax liabilities is certainly a commendable practice; however, one should not neglect to notice the benefits that come with showing reportable net income. Some benefits are as follows:
- Ability to secure financing to meet business demand.
- Maximization on collection of Social Security benefits upon retirement.
- Opens opportunities to take advantage of tax credits.
- Avoidance of unwanted internal revenue audits.
By not reporting adequate income levels, it will be difficult to convince lenders that:
- Your business is creditworthy and deserving of a favorable interest rate,
- You are able to pay back your loans, or
- Your business is growing and your capital needs are real.
Small business owners need to pay self-employment tax based on reported business income to help cover the cost of Medicare and Social Security obligations. By not paying into the system, the funds may be unavailable or insufficient when you come to retirement age.
Additionally, failure to report income could raise red flags with the IRS that warrant unwanted internal revenue audits of filed personal and business tax returns. Failure to report income could result in various civil and criminal penalties and may even lead to the IRS taking a stance that the business is a hobby rather than an actual business venture.
Reporting income isn’t a bad thing, but it does require you to plan ahead and be mindful of tax implications. An experienced CFO can help ensure that you understand the nuances of reporting your business income while being tax savvy in the process. If your business cannot afford a full-time CFO, consider hiring a part-time CFO such as CFO Your Way.
CFO Your Way is a virtual CFO that helps organizations execute on their business strategy. Our team can help guide you in maximizing financial statement net income to demonstrate financial strength while also guiding you in ways that minimize your tax liabilities. CFO Your Way works with several of northern New Jersey’s fastest-growing companies, giving them the opportunity to get the financial management expertise they require with the flexibility they desire.
If you need a virtual CFO to ensure that your business enjoys the benefits of having this professional on your team—but not necessarily in your office—contact Cheryl Mucha at firstname.lastname@example.org for a business consultation.