Protect your bottom line with proactive planning

From materials and supplies to wages, inflation is making it harder for many small and mid-sized businesses to keep their footing.

The good news is smart tax planning can help ease some of the financial strain your business might be facing. This post looks at key tax considerations and potential strategies when everyday costs are on the rise.

Inflation’s impact

It’s no secret that higher inflation impacts your numbers:

• Tighter Margins: Your cost to produce goods or deliver services goes up.
• Higher Overhead: Everyday operating expenses like rent, utilities, and supplies cost more.
• Cash Flow Challenges: More cash is needed to cover these increasing expenses.

Tax strategies for SMBs

When costs are up, leveraging every available tax strategy becomes even more important. Here are areas to review:

Deductions

Overlooking deductions is always costly, but it stings more when margins are already tight. On the other hand, claiming every deduction you can directly reduces your taxable income, helping to offset some of those higher operating costs.

Look closely at all your expenses. Are you claiming everything you’re truly entitled to? This includes things like your home office (if you qualify), vehicle mileage, software subscriptions, and professional fees. 

Clean, detailed bookkeeping is essential here. 

Accounting method

When you officially record income or pay expenses can shift your tax bill between years, helping you better manage your taxable income.

Depending on your accounting method (cash or accrual) and your outlook for future tax rates or business income, you may be able to:

Pay some deductible expenses early: If it makes business sense and you use cash-basis accounting, paying some bills before year-end can reduce current year income.

Delay some income: If possible and sound for your business, pushing some invoicing into the next tax year might defer tax.

Tax Credits

Tax credits are extra valuable when cash is tight because they reduce your tax bill dollar-for-dollar. Still, many SMBs miss them.

Re-check your eligibility for all potential credits. This includes the Work Opportunity Tax Credit (WOTC) if you’re hiring, R&D tax credits (even for process improvements you make to cut costs), and any energy efficiency or state-specific credits available to your business.

Planning is power

Effectively using tax strategies when costs are rising depends on two things: accurate, up-to-date financial records (clean books) and talking proactively with your tax advisor. 

These aren’t one-time fixes; they often need ongoing review and adjustment as your business and the economy change.

Poke a hole in inflation 

Inflation brings challenges, no doubt. But while you can’t control the wider economy, you can control how you strategically approach your business finances and taxes.

Smart, proactive tax planning can be a powerful tool to help ease financial pressures and protect your business’s health during these times.

If rising costs are impacting your business, it’s worth looking at every angle. Arvo Advisors helps SMBs develop tax strategies tailored to the current economic environment. Let’s talk.