Written By: Susan Bryant
It’s the MOST beautiful time of the year! Tax planning time! I bet with an intro like that you thought this blog post was going to be all about how magical the holidays can be and, while that is definitely true, it’s an even more magical time of year if you can reduce the amount of taxes that you’re going to have to pay. Solid tax planning and implementation of advanced tax reduction strategies BEFORE year-end are the gifts that keep on giving—year, after year, after year.
If you are new to tax planning or aren’t sure what this is all about, I’m going to give you a scoop as to what the process looks like and also provide a list of key tax planning topics that you should be discussing with your CPA every year.
Tax planning begins by collecting financial information about what has occurred year-to-date in your business and, if your entity is a pass-through for tax purposes, what has occurred year-to-date for you personally. Since the majority of owner-operated businesses are pass-throughs, we’re going to be primarily using this scenario in our discussion.
So, for the business(es) you operate, you’ll want to make sure the books are updated through October (and that means bank accounts reconciled and the whole month-end close process completed….if that’s not happening monthly then, well, we have a whole other problem to address and you’ll just have to call me so I can explain why routine accounting records are the key to your business’ success).
Also, you’ll need to project sales, cash collections, additional expenses or equipment purchases that will occur in November and December. Depending upon the basis upon which your business files taxes (cash or accrual), convert the net income to the appropriate basis. Do this for each business.
Next, gather your personal financial information—paystubs (wages, FIT withheld), estimated interest income, estimated capital gains, expected K-1 income, estimated itemized deductions, estimated tax payments – pretty much everything that was on your 1040 from last year you’ll need to work up an estimate for what the current year is going to look like PLUS anything new for the current year.
Related: Why Should I Keep Financial Records?
Once you’ve got all this information gathered, then work up a draft tax return plugging in all the current year data. Boom – you have projected your tax liability…..are the angels singing or do you need a Christmas miracle?
Let’s just pretend that taxes due are bigger than the giant pile of gifts that the Grinch stole and you aren’t feeling nearly as jolly. Don’t lose hope—now comes the creative and fun part: brainstorming all of the things that you could do to influence this tax liability. What’s next is going to look a little bit like Santa’s list…it’s long but there are many, many things to be thinking about.
This isn’t an exhaustive list but it should definitely help you and your CPA to begin really THINKING about what you are doing at year-end. If your CPA doesn’t have a clue about any of this when you start talking about tax planning, then you are not working with a professional that is focused on positively influencing your financial future. It’s important to recognize the difference here when selecting this advisor….the past is a great lagging indicator but it’s what’s ahead that is important to manage.
While we are making lists, you’ll be on Santa’s nice list if you also take the time to contemplate these other areas which are connected with your future financial security:
I know, I know….this is a lot of work, but it’s necessary to leading a world-class organization and to ensure you are doing everything in your power to keep your money, get a return on your money and keep risk away from your money. Just like Santa, you will need elves in your business to help out. So, surround yourself with a top-notch leadership team and a circle of key advisors who help you run the best workshop on the planet.
If this blog post leaves you wanting more information, feel free to email me at email@example.com or call me at 469.865.1040 x123. In the interim, may your days be merry and bright and may all your tax bills be light!
Tags: tax planning
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