President at BSM Accounting Services.
If you’re a business owner, then we can assume that the past year has been full of surprises. From temporary closures and fluctuations in business to full-fledged changes in tax legislation, keeping up hasn’t been easy. The uncertainty has kept many business owners on their toes, anticipating the next change. However, If there’s one thing that’s certain, it’s that the ever-evolving nature of these changes has made the importance of having a plan more apparent than ever.
Creating a plan can help you clarify and solidify the known while better preparing you for the unknown. Although it won’t eliminate all uncertainty, it helps immensely. Whether you’re just starting out, or a seasoned veteran, minimizing your tax liability going forward should be top of mind. Developing a solidified plan throughout October, November and December allows you to avoid surprises when tax time rolls around. (It always comes quicker than expected.)
Time and time again, I’ve seen clients come to me after making an expensive error on their tax returns, wanting to avoid this in the future by planning. As the saying goes, “hindsight is 20-20,” and tax planning shouldn’t be an afterthought. Going through the process of building a tax strategy can help you build the foundational thought framework necessary in order to make tax planning a fundamental facet of your business strategy.
While there are a plethora of benefits that stem from tax planning sessions, below are a few of the most important ones.
• An estimate of your year-end tax liability.
• Business investment roadmap.
• Deductions discovery.
• An overall reduction in your tax burden.
• Increased knowledge of the tax system.
The benefit that most of our clients are currently focused on is maximizing “real returns,” in other words, improving your bottom line while adjusting for rising costs, increased taxes and the resulting fluctuations in operating costs.
Our current economic landscape is one of increasing taxes, changing regulations and soaring inflation. Coupling the aforementioned facts with historically low bank interest rates, getting the best bang for your buck has never been more critical. Strategic tax planning plays an important role in allowing you to “look ahead” and ensure that your business returns outpace the rising cost of living.
Each person’s tax plan will be different, tailored to suit their specific goals and needs. Your current state financials, goals and growth targets should be taken into consideration when crafting the optimal tax strategy for you and your business.
Tax planning can also be an efficient legal way to cut your tax bill at the end of the year. It starts a conversation and helps you grow your business intentionally, allowing you to think of ways to reinvest into your business and turning those investments into deductions. Additionally, having a plan and sticking to it helps you focus on other aspects of your business, like customer experience and your service.
How do you start?
It’s important to remember that each financial business decision you make will carry tax implications along with it. One great step toward getting organized is keeping track of all your inflows and outflows, and this is the first step to building a comprehensive view of your finances. You can do this by partnering with a bookkeeper or opting to utilize an old-fashioned excel spreadsheet.
If you already have a tax planning partner, setting up recurring reviews with your accountant or advisor can be a great way to stay up-to-date and keep your goals aligned. These could take place monthly or quarterly and really help set you up for success.
With programs like additional PPP funding and Emergency Disaster loans, this year’s tax season is expected to be more hectic than the years prior. So start your planning process now. You may be surprised by how much money you have been constantly leaving on the table at the end of each year.