An uneven cash flow will make it difficult to predict tax obligations.

We completely understand why some owners avoid their taxes. Not only can this process be time-consuming and confusing, but having an uneven cash flow can make it nearly impossible.

Whether you’re a small business owner or freelancer; having a firm grasp on your cash flow is important. After all, cash flow is one of the strongest indicators of your business’s financial health. That’s why we’ve outlined some of our top tips for judging your tax obligations with an uneven flow.

Estimating Quarterly Taxes

Owners are expected to pay quarterly estimate taxes. To gauge this amount, standard advice tells owners to look at the prior year’s tax return. However, for those struggling with an uneven cash flow, looking at your prior year’s return could not be an option. That’s because, if your flow is uneven it could skew the numbers and give you an inaccurate amount.

But, this doesn’t mean you should avoid paying altogether. After all, those that don’t pay their estimated quarterly taxes will have to pay a penalty fee which could result in owing more.

To fix this issue, daily work needs to come into play. Owners with an uneven flow should spend time each day updating income and expenditures. These accurate and detailed records will be key to understanding how much you will have to pay as you’ll have a month-to-month breakdown.

And, if you do happen to underpay or overpay don’t fret. The IRS will issue a correction on your annual tax return. The correction will specify if you need to pay the difference, or if you over-paid and can get a return.

Use Different Cash Flow Formulas

If you have an uneven cash flow, predicting things like your yearly earnings can be difficult. However, it’s not impossible.

To fix this issue, owners need to use a range of formulas in order to gauge how much they are making. This means being in the know when it comes to things like your income, depreciation, working capital, and expenditures.

Without this information, owners won’t have a clear picture of where their business is, and where it’s heading.

Ultimately, not knowing this data can leave them unprepared come tax time. Or, unable to handle the bill at all.

Business Structure

The business structure will also influence the amount owed in taxes. Meaning, there are different obligations when it comes to those designated as LLCs, S-corps, C-corps, and sole proprietors. It’s important to note that most freelancers file taxes as a sole proprietor which is easily integrated with personal tax returns (by filling out a Schedule C form).

But, those filing as a corporation or LLC, will pay unemployment tax, federal and state taxes, and half of the FICA tax which is something to prepare for throughout the year.

Know Your Deductibles

Not knowing what you can claim as a deductible or benefit will impact your taxes. That’s because you won’t have an accurate picture of your finances. Not knowing what you’ll get money back on, or what benefits you qualify for means you could be leaving money on the table.

Identifying tax dedications and credits means you can be lowering your tax bills and avoiding any tax debt. Some common things that small business owners and freelancers may qualify for are vehicle expenses, office supplies, licenses, travel expenses, legal and professional services, and more.

We recommend keeping track of all your expenses by making daily records of what you’ve spent. Having a tracking system will make it easier to determine what you owe come tax time.

However, before claiming any deductions, speak with a tax professional, like us at A.P Accounting and Tax Services. We can work directly with you to build a tracking system that identifies your tax obligations.

If you’d be interested in learning more, or knowing what services would benefit you, give us a call at 407-328-5001.

Image: Unsplash