Help Me Save on Taxes
We sat down with a team of professional CPA’s with well over 180 years of combined experience asking them questions all small business owner would want answers to in regards to saving money on taxes. These questions were aimed specifically to small businesses, however, whether you own a business or not, the answers may affect you too.
Q: How do I save on taxes?
A: This is the magic question everyone has. The answer to this question is simple; be proactive, plan and keep it simple. Communicating with your accountant throughout the year is imperative. This allows them to monitor where your tax position was in the prior year and how your current year tax position effects your income, business profits, or possibly tax law changes that may affect how much you owe in taxes at the end of the year. If you call your accountant in January after the year is over, there is little any accountant can do.
Q: How do I go about tax planning effectively with my accountant?
A: Most importantly your accounting firm should be providing you with direction and leadership. In return you must supply them with the information they need in a timely manner for tax planning to be effective. It’s a two-way street. This process begins with knowing where you were at last year and where you are now.
Are profits up or down? If we are looking to get your profit down, could we purchase an asset or figure out a way to expense items in the current year instead of waiting for the new calendar year to start? These are just a few ways to effectively tax plan with your accountant.
Q: With complex Tax Codes and Federal Regulations changing, how do I as a business owner navigate through them and take advantage of them?
A: Again, keep it simple. If you don’t understand it, ask. Small business owners sometimes get sold a bill of goods they don’t understand, and without understanding the consequences/tax effects, certain laws and regulations could be devastating. Always talk to a professional first.
One of our CPAs shared with us a story of how a client bought a “fancy” investment vehicle intending on saving him taxes. Without talking with his CPA, this client ended up paying $80,000 in penalties. The plan a few years later was no longer even being offered for sale because of the complications it created. Had he discussed this with his CPA he would have had knowledge that a special form was required for tax filing.
If it sounds too good to be true it probably is. Those that try to avoid taxes usually in the long run get in to trouble. A lot of businesses try to avoid paying taxes, but keep in mind, if you are paying taxes you are making money. Taxes are an inevitably reality if you are planning on making money. Warren Buffets says to only invest in something if you understand it; we highly suggest the same thing when it comes to your taxes. Only do things you can understand, while still taking advantage of every tax benefit you can. Pay your fair share and not a penny more. You will have less sleepless nights knowing that if Uncle Sam knocks on your door you played by the rules.
Q: What do I need to stay in compliance while also making sure my tax liability is a low as possible by law?
A: This is based on having regular communication with your accountant and establishing a yearend process with their firm. The accounting firm should provide you with direction on their procedures and at the same time you must supply them with the information they need so your taxes can be filled on time, making sure you are capturing all your deductions and any possible credits.
One simple tool to utilize is a tax questionnaire. Your accounting firm should have one that lists a series of questions about your income, possible deductions and credits available to you as a taxpayer. Working with a reputable firm that has developed a questionnaire that is simple, efficient, and effective, will get you the results you want and help you save on taxes.
To learn more about implementing a process in your small business that will help you monitor your tax situation and make sure you are capturing all your deductions and expenses to help you save on taxes, contact us or call (414) 269-8705.
