It’s time! It’s tax planning season once again here at Tax Time CPAs! We’ve finished with last year’s taxes officially. Goodbye, extended tax season, Hello 2020… ugh… 2020…
At Tax Time CPAs, we focus on tax planning twice a year, ideally in August and November. Why? Because in those months, we can get the clearest picture of what’s going on, make predictions, and course-correct if necessary.
A question we get asked all the time is: Why should my business participate in tax planning? We’re going to explore the answer in this article.
Tax Time is All Year
Tax time doesn’t end when we file your tax return. Taxes impact every aspect of our lives and businesses. That’s why we think it’s important to have robust tax planning. If you only take a look at the tax impact of what you’ve done when you come in to complete your taxes, you run the risk of missing tax savings or taking advantage of new tax law.
Picture this, you are considering purchasing a large piece of equipment in late December. You anticipate this new equipment will boost revenue 3x next year. Considering all the facts, your tax advisor can let you know if there are greater tax savings if you delay the purchase until after the new year. This slight delay may help offset the anticipated increase in revenue and result in more significant tax savings.
At the mid-year tax planning session, if large purchases are on the agenda, your tax advisor can assist in evaluating your cash flow and review any beneficial tax strategies. Taking the time to chat with your CPA throughout the year helps you become more strategic with your financial and tax planning to build wealth, not just save a couple bucks on taxes.
Unpleasant Surprises Without Tax Planning
We’ve all heard a horror story of someone getting an enormous tax bill on April 15th, even after paying the estimates that were printed with their tax return.
If you’re running on last year’s numbers, you could be in for an unpleasant surprise. We live in a changeable world. Most businesses experience ebbs and flows. Never has that been more abundantly clear than in 2020. Almost every business plan was thrown out the window in March 2020.
Multiple Touchpoints Equals Fewer Surprises
Perversely, 2020 is the poster child for having routine meetings with your financial and tax advisors. When you have regular checkpoints, like tax planning meetings in August and November, your financial picture for the year becomes clearer at each meeting. We focus on August because, typically, after 8 months, we have a pretty good indicator of what has happened in the year. Then we can predict the remaining 4 months. Your third quarter (Q3) estimate is adjusted as needed for what you’ve already paid for the first two quarters.
Our next meetings are in November because the year is almost complete. We can determine if our financial crystal ball was correct, and if not, we have time to make some course corrections. Maybe we can adjust your salary, a popular strategy in S-Corps, or modify your retirement contributions. Perhaps that big piece of equipment should be purchased before the end of the year after all. Or if business has gone south, we can decrease your final estimate. After all, a huge refund surprise can be just as nasty if you could have used that money in your bank account rather than loaned to the government.
Additional Insights – Added Clarity
Often when you come in for tax planning meetings, you get bonus insights into your business. As part of the tax planning process, we take a look at your financial statements. Sometimes we notice something you may not have seen, and it might be an opportunity to cut a cost or boost revenue.
This time is an opportunity for you to ask questions. There were a number of programs and tax law changes in 2020. The CARES Act and Payroll Protection Program being the most prominent. Tax planning sessions allow you to ask questions to clarify how these laws may impact your business.
Less Stress. More Focus.
When you invest in tax planning, you can relax. Stress is lifted. You can rest easy knowing a professional is reviewing your numbers to develop a tax strategy that will benefit your business. You can be assured that you won’t be drastically underpaid or overpaid, scrambling to find your payment on April 15th or wasting valuable funds throughout the year.
Less stress results in more focus on doing what you want to do, spend time working on your business or with your family. It takes the pressure off of trying to figure out tax rates and lets you breathe a little easier—something we’d all like in 2020.
Summing Tax Planning Up
Tax planning really does help drive more success, clarity, and focus within your business. When you’re able to incorporate tax planning and tax strategy throughout the year, your business benefits from strategic moves and insights rather than clean up efforts after the fact.
If you’re a current client and you’re ready to schedule your tax planning appointment, please click here.