Tax planning is key to success
I don’t believe in paying more in taxes than you are legally responsible for. And I believe highly in reducing the taxes you owe with legitimate tax strategies. The keyword here is strategies.
Working with the right tax professional you can have a strategy that helps you pay less in taxes while growing your business
This past tax season I had a client leave because she felt she owed too much in taxes. Losing clients is never fun and can make you second guess yourself. With a bruised ego I sat down and figured out what went wrong with this client.
There were several issues that jumped out at me. I originally thought the biggest issue was communication (on both of our parts), but if I’m honest, it started with client selection. This business never should have been a client. We weren’t a good fit for each other from day one. She didn’t want to keep good records, only called in an emergency, and never asked for advice throughout the year.
As far as communication went, the client did not communicate that she wanted to pay zero taxes and we didn’t do a good enough job explaining that tax planning is a long-term strategy, not a race to zero each year (keep reading to see what we mean).
You can’t expect to visit your CPA once a year and pay the least amount in taxes. If that’s what you want, you don’t need a CPA, you need a form filler.
If you’re looking to pay less in taxes, grow your business, and constantly learn and improve your operations, you need a CPA behind you. The right professional can help with these things as well as educate you on how tax planning can help you reach your goals.
Tax planning is an art, and a science, that must be done in advance
Here’s why you shouldn’t want to pay $0 in income taxes:
The cost of making money. If you are profitable you will owe taxes. If you lose money you will not owe taxes. Who here is in the business of losing money? Not me! Above all else this is a mindset shift. If you are a business owner and the top 5 people you hang around don’t pay taxes, you’re going to think the same way. Break out of that shell and realize if you want success, you will pay taxes.
Tax planning is a long-term strategy. More than likely if we get you to zero taxes this year, next year is going to be a high tax year. It’s all a roll. If you start rolling income or shifting expenses into another year, you’ll have to do this every single year just to breakeven.
Take advantage of the lowest tax brackets. Taxes are calculated at marginal rates. Based on the 2019 tax brackets, a married copy will pay 10% tax on the first $19,400, then 12% on the next $59,549, 22% on the next $89,449, and so on.
As an example, if your total taxable income (income after standard/itemized deductions, retirement savings, etc.) is $168,400 you will pay a total of $28,765, which is 17%. 17% is not bad!
My point is, if you are making money, you should never want to NOT take advantage of the 3 lowest tax brackets. Especially the lowest 2! It would not benefit you to pay 0-10% in year one and then get stuck at 32-35% in year 2 or 3. That math doesn’t add!
This comes back around to #2 above.
Tax planning is a long-term strategy
Getting a loan can be impossible. I’ll make this short and sweet. It’s real hard to get a bank loan to grow your business, purchase equipment, or buy a new home when you don’t pay taxes. Your banker is going to want to see consistent profits in order to give you a loan.
You won’t receive social security benefits. If you don’t pay into social security you will not receive any benefits. I know what you’re thinking, “It’ll dry up before I’m at the age to retire” but what you haven’t considered is social security disability.
If you become disabled you may be able to receive social security disability and medical benefits. However, if you’ve never paid into the system you will not qualify.
You must have income for the Qualified Business Income Deduction. Almost all of my business clients were able to save in taxes based on the QBID this year. This is a 20% tax deduction off business income.
If you report a loss you do not get this deduction.
For example, you want to pay $0 taxes so you purchase a piece of equipment and bring your net income to $0. You think that’s a win. However, you won’t qualify for the 20% tax deduction (it’s use it or lose it). It may have been smarter to depreciate that equipment over 5 years, taking advantage of the 20% tax deduction on business income, which would have lowered your taxable income into a lower tax bracket. Then you still receive a tax deduction for depreciation in years 2-5.
I realize this might not all make sense, but it does to me. This is what I went to school for, have done for 15+ years, and do with my clients on a daily basis. Not only that, I spend a lot of time each year keeping up with tax changes and learning new strategies. I love it and I’m confident in the results we produce.
If you’re not sure you have the right tax strategies in place, I would love to help. We can do a tax assessment to show you not only where you can save money, but how much you can save. We’ll tie those strategies to your business goals and work together to achieve them.
Aligned CPA helps solo and small law firms, as well as other service professionals. We’d love to talk with you and see if we would be a good fit for your firm. Contact us for a consultation today.
I help solo and small law firms GROW by providing coaching, growth planning, accounting, and tax services that will take their business to the next level.
I promise you, working with a CPA can be much more exciting than crunching numbers and reviewing last year’s taxes. I look at the day-to-day of your business and help you find ways to perform better, grow bigger and generate revenue with greater ease.