amount that is taxed. Sounds simple enough. Maximizing those deduction is a large part
of tax planning and should be part of every business owner’s financial strategy.
Many small business owners take steps to reduce their taxable income near the end of
the year in a scramble to relieve their tax burden. Often, that’s too late. Tax planning
should be a year-round activity. Doing so will not only save you money in the not-too-
long haul; it will ease your anxiety level and make tax preparation a lot easier, so that
April 15 is just another day.
For most businesses, their fiscal calendar is January through December. A fiscal cal-
endar is the time frame used for accounting income, expenses, and all that money stuff
for a business. It can also be called a tax calendar. Although some businesses use different
dates, for our purpose the standard calendar will do the trick, since it’s easier.
Now it’s time to complicate matters a little. There are two ways of accounting for in-come and expenses—the cash method and the accrual method. The cash method is simple
and straightforward. You account for income and expenses when you get the money or
pay a bill. Easy. It’s the accounting method of choice for the majority of those operating
as sole proprietors. Accrual is slightly more complex, and corporate entities must opt for
it. With accrual, income is accounted for when a business has the right to receive it. In
other words, usually when it’s billed. Expenses are treated in a similar fashion and ac-
counted for when a bill is due, rather than paid. The idea is to fairly accurately present a
business’ financial position during a particular accounting period. For many small busi-
ness operations, like a band, it’s usually overkill, but for corporations and big name acts
with complex financial transactions, it makes a lot of sense. Actually, most big name per-