Now – its easy – you take the total year revenue ($120,000) minus the total year expenses ($72,000), and at this point it looks like your full year taxable income will be $48,000 ($120,000 minus $72,000).
THAT is the number you take to your tax accountant BEFORE YEAR END to ask him/her what you can/should do to make your income tax come in at the best possible (lowest) amount.
One of my current clients did just this. He had a massive kick starter campaign, and a whole bunch of cash came in to the business as a result. His product would be distribured to the supporters by the end of the current year.
So, in short, hHe is going to make a ton of money in the business this year; and the goal is to keep as much of that money as possible in the business; and even more importantly, be sure that we have enough money in the bank to cover whatever that tax bill turns out to be.
Let’s make sure TAXES don’t bite in the very year that you’re celebrating profitability. Apply the formula above anytime during the year just to keep a good eye on this potential pitfall and turn it into an opportunity instead.
Happy New Year!