Small Business Profit Maximizer!

Huge Changes to the Employee Credit Can Mean BIG Money from the IRS!

The new law passed in Late December of 2020 created the possibility to get both the PPP loan and the Employee Retention Credit at the same time. It also extended and expanded the credit into 2021.

This can equal a large credit which will reduce your payroll taxes equal to the dollar amount of the credit amount you qualify for. In this video I discuss the rules and how this can mean reducing your payroll taxes substantially. For one of my clients I estimate it can be up to $50,000.

 

 

How Should Employers Handle President Trump's Payroll Tax Deferral

Under President Trump's Executive Order, Starting 09/01/20 Social Security taxes will be deferred for the rest of 2020. So how should employers implement this order.

 

 

Avoiding Costly Entity Selection Mistakes

In this video I discuss the three major mistakes that business owners make when opening a new company. I also discuss how these mistakes can cost you thousands of dollars.

 

 

I Forgot to File My Taxes! Now What?

Every year I hear this question from people who just missed the tax deadline. What should you do If you forget to file your tax return on time?

 

Every year I hear this question from people who just missed the tax deadline.  I joke that these are the people who believe that deadlines are only recommendations that really don’t apply to them.  Unfortunately, that is not how the IRS looks at it!

Here are the key points to remember when filing late:

• If you are getting a refund, then there really is no problem, since penalties and interest only apply to any balance you might owe. Of course, you should file promptly in order to get your money back.  The IRS will not refund you any money owed if you wait three years from the time the return was due.  That means that you can still file for 2010, 2011 and 2012 and receive a refund.
• If you owe tax, you may be charged a failure to file penalty of 5 percent of the balance due per month (or part of a month), up to a maximum of 25 percent. So try to get your tax return filed as soon as possible to avoid this penalty.
• If you don’t pay your taxes on time, you will also be penalized a failure to pay penalty of 0.5 percent per month (or part of a month) up to a maximum of 25 percent.
• Filing an extension will not eliminate the failure to pay penalty, only the failure to file penalty. You will still be charged interest and the failure to pay penalty up to the date you finally pay the tax.
• If you can show reasonable cause for not filing or paying on time, the IRS may abate the penalties. You should explore this possibility with your tax preparer.
• Don’t ignore the problem and hope it will go away. The IRS, like any large bureaucracy, can often take months or years to send you notices about unfiled and unpaid income taxes.  But they will always catch up to you.  Ignoring the problem only makes the balance owed larger and can lead to the IRS seizing your bank account, paycheck, and assets.

Save Taxes by Hiring Your Spouse

Your spouse is probably already helping you in your business. Actually, officially putting them on the company’s payroll has many advantages.

 

If you’re a business owner, you know how much you rely on your family’s support.  Your spouse is probably already helping you in your business.  Actually, officially putting them on the company’s payroll has many advantages.

1. You can deduct the full amount of contributions to a qualified retirement plan made for your spouse. Of course, you still need to follow the laws and guidelines, but this is a great way to lower your taxes and save for retirement at the same time.

2. If a business owner is operating a C corporation, payments to the spouse can reduce taxes if the company is in a higher tax bracket than the owner’s tax bracket. This also allows you to take more funds out of the corporation before the company is hit with the excess earnings tax or has to pay dividends, which results in the much-feared double taxation of income.

3. If your spouse is considering going back to school for a business degree or something else that can benefit your business, the business can pay for it and deduct the tuition. You cannot take any education credits for yourself, but you will not be taxed on the money you spend on tuition. This can be tricky, so please check with your tax preparer.

4. Health insurance is another area where hiring your spouse can cut costs. As we all know, health coverage is expensive, and if you hire your spouse, you can get the same coverage and price that your other employees receive.  The difference is that it is 100% deductible.

5. If you and your spouse travel a lot for business, you can deduct the mileage and expenses for both of you. If your spouse is an actual employee and will be performing work-related duties during the trip, expenses can be deducted as normal business expenses.

6. Again, if you offer your employees life insurance at group rates, you can include your spouse in that plan.

These are just some benefits that you can receive if you are considering employing your spouse. You may want to consult a tax advisor and your insurance representative to make sure the savings are worth the payroll tax expenses.

Like any good CPA, I need to add a disclaimer:  Unfortunately, it is impossible to offer comprehensive tax info in this video or article, no matter how well researched or written. And remember, I love my readers, but watching this video or reading this article does not make you a client. Before relying on any tax information given in this magazine, contact a tax professional to discuss your particular situation.

COVID19 Loans & Payroll Credit Updates

In this video I cover recent changes in PPP loans, EIDL loans and Employee Retention Credit.

The number and speed of the changes that are occurring is one reason you need professional help while preparing your PPP loan forgiveness package, apply for EIDL loans and get your payroll related Payroll tax credit from the Employee Retention Credits.

 

 

CARES Act Provides Substantial Payroll & SE Tax Payment Relief

The CARES Act includes provisions that allow you to delay payment of the employer portion of payroll taxes for your employees. It also offers delayed payments for Self Employment tax for Sole Proprietors and Partners.
.
In this video I discuss the rules of the law and give guidance on when you should take advantage of this law. (Also includes a small rant about the lack of common sense being applied by the government on who can be open and who can't--sorry)

 

 

Why the Employee Retention Credit Might be a Better Option than the PPP Loan

The Employee Retention Credit is an overlooked part of the recently passed CARE act designed to help businesses survive the COVID19 related loss of revenue.

If you qualify, and most small businesses will, the credit can reduce your payroll tax payments and provide some cash up to $5,000 per employee.

In this video I discuss the workings of the Employee Retention Credit that eliminates your payroll tax payments with the excess being a refundable credit.

 

 

Tap Into Your IRA Tax Free During COVID19 Related Financial Crisis

The CARES Act allows taxpayers affected by COVID19 to borrow up to $100,000 from their IRA without tax or penalty. In this video we discuss who qualifies for this tax break, how you pay it back tax free and what happens if you can't or don't pay it back within three years.

 

 

Tax Breaks From the CARES Act

The CARES Act (Coronavirus Aid, Relief, and Economic Security Act) included many tax breaks designed to get cash to individuals and businesses.

In this video I discuss how the $1,200 per person checks will be sent out, calculated and how it will be reported on your 2020 return.

Also the CARES Act increases the amount of Charitable Contributions allowed to be deducted. It also allows businesses to carry-back Net Operating Losses to prior years in order to get a refund of taxes paid in prior years. Also retroactively eliminates the limitation on business losses and allows Sec 179 deduction in full for Qualified Improvements made in 2019.

 

 

July 15th is the New April 15th

In this article I cover the change in the income tax filing deadline for individuals, C-Corps and trusts and estates from April 15th to July 15th. This also applies to 2019 tax payments and 2020 tax estimates. I also cover how this affects 2019 IRA, HSA and employer retirement plan contributions.

 

 

Maximizing the New 20% Deduction

 

For tax years beginning after 2017, business taxpayers (other than C-Corporations) may be able to take the new Section 199A 20% deduction of their qualified business income.  This means that you will only pay tax on 80% of your business income.  For service businesses, the deduction begins to phase out as taxable income reaches specific thresholds.  For joint filers the threshold is $315,000, and for all other filers, the threshold is $157,500.

Additional limitations apply to non-service businesses owned by joint filers with taxable income between $315,000 and $415,000, with the deduction completely phased out for incomes over $415,000.  The same limitations apply to all other filers with taxable income between $157,500 and $207,500, with the deduction similarly phasing out completely above $207,500.  There are exceptions for businesses with income over these amounts if they have sufficient assets and employee wages.

These limitations open up many opportunities for tax planning.  Taxpayers can massively cut their taxes by deferring income or accelerating income in order to come under these threshold amounts.  Depending on your business entity, you may be able to increase your 20% business deduction by increasing W-2 wages before the end of the year.

The rules are very complex and this article is just touching the surface of it.  To maximize your Section 199A deduction, review this area carefully with your tax planner before year-end.

26 Tax Tips for Families & Individuals

 

Many wage-earning taxpayers with children believe that their tax-planning opportunities are limited because they are not in business or don’t own rental properties. While they don’t have anywhere near as many options, there are still a number of strategies they can employ to cut their tax liabilities. Here are a few of the bigger ones.

1. Maximize your 401(k) contributions. This is one of the best tax-planning tools for wage earners. At a minimum, contribute the amount needed to receive the maximum employer match.

2. Maximize the credit for the first four years of college. The American Opportunity Credit reduces your tax by up to $2,500 of which up to $1,000 is deductible. If your student just started this fall, consider paying spring tuition in December to maximize the deduction. Be aware that this credit phases out when your income reaches certain thresholds. You can still qualify for the Lifetime Learning Credit if your student has already claimed the American Opportunity Credit for four years.

3. In a low-income year, consider converting your regular IRA to a Roth IRA for very little tax cost. Future distributions from Roth IRAs will be non-taxable rather than taxable.

4. Max out your contributions to your IRAs, 401(k)s, or self-employed retirement plans.

5. If you itemize, clean up your garage, closets, and sheds and make a donation to Goodwill or a similar charitable organization. Donations must be in good or better condition. Get a receipt, and I would highly recommend taking pictures to support the deduction.

6. An alternative to donating household goods is to sell them at a yard sale. Since items are usually sold below their original cost, the proceeds will be tax free.

7. If you itemize, prepay medical expenses by December 31. This year you can only deduct the amount that exceeds 10 percent of your adjusted gross income (AGI). You can charge your medical expenses to a credit card and claim the deduction this year, even if you don’t pay the bill until next year.

8. Track your medical and contribution mileage. You can deduct 20 cents per mile driven for medical purposes and 14 cents per mile driven in service of charitable organizations. The key to deducting mileage is maintaining proper records. Keep a log every time you drive.

9. If you are falling short of the itemized deduction levels ($12,000 for singles, $18,000 for head-of-households and $24,000 for married couples) consider bunching your deductions so that you itemize in one year and use the standard deduction the following year.

You can do this by paying one year’s property tax in January and the next year's in December of the same year. Be sure to take into the account the new limitation on state and local taxes (SALT). Starting in 2018, you will only be able to deduct $10,000 per year in SALT so plan accordingly.

Then pay your medical expenses and donations in that same year.

10. If you are thinking about buying a car in early 2020, consider buying it before the end of the year. You can deduct the sales tax on the auto in addition to the sales tax amount calculated from the IRS tables.

11. Get a home equity loan and pay off personal loans where the interest is not deductible. You can deduct the interest on up to $100,000 of the home equity loan, regardless of how you use the borrowed funds.

12. If you have losses from sale of stocks and mutual funds you should consider selling stock investments with a large amount of unrealized gain in order to use these losses. Check with your tax advisor so you can get advice about your particular situation.

13. As long as it makes financial sense and fits with your financial goals, sell any stocks in a loss position to offset any capital gains you may have from the sale of other investments. But if you have losses from 2018 or prior years, consider selling stocks that have built-in gains to use the loss and shelter the gain. If you are replacing the sold stock, you must wait 30 days or consider buying a different company’s stock in the same industry.

14. Invest in tax-free municipal bonds. These bonds are typically free from federal, state, and local taxes. This makes them an excellent tool to reduce taxable income, even for higher-income taxpayers.

15. If you have taxable income from investments that you will not use to live on for a number of years, consider investing in an annuity to defer the taxes on this income until you use it in the future.

16. Pay down your outstanding student loan interest.

17. Review your Alternative Minimum Tax (AMT) liability exposure. The new law reduces the number of people that will be affected by the AMT. But if you are one of the unlucky ones getting hit, you may be able to reduce or eliminate the damage by postponing tax preference items until 2020. Check your 2018 tax return: If you paid an AMT, get with your tax advisor and explore ways you may be able to avoid it in the future.

18. Keep good records to “audit-proof” your deductions. The IRS follows a simple rule—if it isn’t written down, it didn’t happen! Keep good records for every deduction and receipt of non-taxable income.

19. If you and your siblings pay for more than 50 percent of your parents’ support, you should explore claiming them as an exemption. If you are single, this may allow you to claim the lower-rate head-of-household status.

20. Make the most of health savings accounts (HSAs) for paying health care costs that are not covered by insurance. If your employer offers one, contribute the maximum allowed (or as much as you can afford). The limits are $3,500 for individuals and $7,000 for families.

21. Rent out all or a portion of your principal residence or second home for fewer than 15 days, and you don’t have to report the income.

22. Deduct alimony payments. Under the new tax law you can no longer deduct alimony payments made pursuant to a post-2018 divorce agreement. This means that an alimony deduction will be allowed for pre-2019 divorce agreements as long as all of the tax law requirements for deductibility are met.

23. Make sure your home equity loans are deductible. The new tax law completely eliminates the write-off for home equity debt unless you use the proceeds for improvements on your main home and one other personal property. Using funds for anything else will make the interest no longer deductible.

24. Be careful of the 3.8% surtax on certain unearned income. If you have unearned income and your adjusted gross income is approaching $250,000 for joint filers, $125,000 for married filing separately, and $200,000 for all others, you need to see your tax planner before year-end in order to limit the effect of this surtax designed to soak the rich.

25. Consider arranging with your employer to defer until early 2020 any bonus you may earn if it will push you into a higher tax bracket.

26. If you are older than 70½ and are required to take a minimum distribution from your IRA, consider making any planned charitable donations directly from your IRA rather than from your personal funds. This prevents the donations from being added to your income when the higher standard deduction eliminates itemized deductions for most retirees.

Review of Tax Law Changes for Individuals

The new tax reform law passed in December of 2017, known as the Tax Cuts and Jobs Act or TCJA, is the biggest overhaul of the federal income tax code since 1986. It will have huge effects on individuals in 2018 and beyond. Here are some of the main changes affecting individuals.

    1. The new law keeps the seven tax brackets but with different rates and break points. I’m not going to detail them here, but whatever tax bracket you         are in, your income will now be taxed at lower rates than under the old law.

    2. The standard deduction will nearly double in 2018. It jumps to $24,000 for couples, $12,000 for individuals, and $18,000 for heads of household.

    3. Individuals age 65 or older and the blind will continue to receive an additional deduction under the new tax law. For 2018, each person can claim an         additional $1,300 deduction.

    4. Personal exemptions for all filers are repealed.  

     5. The child tax credit (direct dollar-for-dollar reduction of tax) is doubled to $2,000 for every dependent under age 17. Up to $1,400 of the credit is             refundable for lower income taxpayers. The AGI phase-out starts at a much higher limit of $400,000 for couples and $200,000 for singles and heads of         household.

    6. A new $500 credit for each dependent who is not a qualifying child has been added.

    7. Home mortgage deductions are limited for mortgage debt incurred after December 14, 2017. Interest can be deducted on up to $750,000 of new                 acquisition debt on a primary or second residence. The previous limit was $1 million, which still applies to older loans and refinancing of old loans.

    8. There will no longer be a deduction for the interest paid on home equity loans.

    9. State and local tax (SALT) deductions will now be limited to $10,000. Property taxes are still fully deductible for businesses and owners of rental                 property.

   10. The law eliminates the deduction for job-related moves except for military personnel.

   11. All miscellaneous itemized deductions (reported on Schedule A) that are subject to the 2% of AGI threshold are eliminated. This includes, but is not           limited, to:
                1. Employee business expenses
                2. Brokerage fees
                3. IRA custodial fees
                4. Hobby expenses
                5. Theft and casualty losses (except for those in presidentially declared disaster areas)
                6. Alimony deductions for post-2018 divorce decrees. This is good news for those who receive alimony; they will not have to report it as income.

   12. The medical expense deduction limitation for 2018 is reduced from 10% to 7.5% of adjusted gross income.

   13. Charitable contributions remain, and the AGI limitation on cash donations to qualified charities increases from 50% to 60%.

   14. The phase-out of itemized deductions for higher-income taxpayers is eliminated.

   15. The new law makes converting a traditional IRA to a Roth IRA something that should be done carefully. In the past you had until October 15th of the          following year to reverse the conversion if the ROTH lost money. After 2017 conversions are irreversible.

   16. Unearned income of dependent minor children is no longer taxed at the parents’ rate. It is taxed at trust return rates, which are normally lower than          the parents' rate but higher than the child's rate.

   17. The new law lowers the individual alternative minimum tax (AMT) by increasing the exemption amount to $109,400 for joint returns and $70,300 for          SIngles and heads of household. The exemption starts at $1 million for couples and $500,000 for single filers and heads of household.

   18. The Obamacare requirement that individuals have health insurance, qualify for an exemption, or pay a fine is repealed for years starting in 2019.

   19.Tax-free treatment of like-kind properties has been eliminated for all but real estate transactions.

   20. The estate and gift tax exemption per person is doubled to $10 million from $5 million.

Before you do anything else, why not join The Profit Maximizer Club on FaceBook.  This community is designed to help each other grow their profitable dream business.  Click here to request to Join! (http://bit.ly/SmartProfitCommunity).

In this group you may feel free to message me directly if you have a question or need help. I am a CPA that has been working with small business owners since the late 1970’s. There is a very good chance that either my clients or I have faced your problems before and I can help you avoid our mistakes and repeat our successes..

Be sure to check out my blog, “Small Business Profit Maximizer!” Where I share these videos and other ideas you can use to make this your most profitable year ever!  Click https://wjb-cpa.typepad.com/ to go to the blog page..

Also click on www.thesmartprofitmaximizer.com for our online coaching courses including the following free courses:

• Double Your business profits in 30 Days
• Turn to your customers when you need cash now.

Finally, if you have a question or wish to talk to me you can email me at [email protected] or call my office at 915-857-8158..

Thanks so much and let’s make this our most profitable year ever!

Review of Business Tax Law Changes

On December 22, 2017, the largest tax bill since 1986 was signed into law.  The Tax Cuts and Jobs Act (TCJA) made many changes to business taxes.  First, let’s start with those items that were eliminated for 2017.

Business Tax Breaks That Went Away in 2018

• Entertainment expenses are eliminated. Before 2018, you could deduct 50% of entertaining customers and other business associates.  Under TCJA the deduction is no longer allowed.  So if you take a customer to a ball game or to a play, you cannot deduct any of it.  Recently issued IRS regulations allow deductions for meals with customers and other business associates.

• If your business has a net operating loss for 2018 or later, you can no longer carry-back the loss to prior years to reduce that year’s income and get the business a refund. Instead the loss is carried forward until it is used up to offset future income.  There is an exception for farmers who still have access to the 2-year carryback.

• Business losses for high-income business owners. For the years of 2018 to 2025, excess business losses are not currently deductible and instead are treated as a net operating loss that is carried forward.  Excess business losses means the excess of business deductions over $250,000, or $500,000 on a joint return.

• Reimbursements to employees are now included as taxable compensation and you must now pay employment taxes on them.

• The gain deferral on vehicle and equipment trade-ins is eliminated for years after 2017. If you trade in a business vehicle, you will have to report a gain on the amount you received as a trade-in over the amount of your asset cost less depreciation.  Of course, you can now depreciate the full cost of the new business vehicle without a reduction for the gain.  So if both vehicles are used for business, you should end up in the same place as you would have under the old law.

• The 90% domestic production activity deduction is eliminated after 2017.

New Business Tax Breaks for 2018

Now let’s get to the good news for business owners!  There's plenty to be happy about.

• The new law allows a 100% first year Section 179 deduction for both new and used business assets placed into service for 2018. The phase-out of Section 179 deductions is increased to $2.5 million.

• Large pickups, vans, and SUVs with gross vehicle weight ratings of at least 6,000 pounds used over 50% for business can now be 100% deducted in the first year.

• Property eligible for expensing now includes depreciable assets used predominantly to furnish lodging.  Examples are furniture and appliances used in hotels, apartments, and rental homes.

• Commercial buildings can now expense roofs, HVAC equipment, fire protection, and security systems.  This area is now much more complicated and you should contact a qualified tax planner.

• Don’t miss out on the new 20% business deduction (Section 199A).  Starting in 2018, only 80% of your qualified business income will be taxed.  This is a huge break for small businesses, but it comes with many limitations and is very complicated.  If you own a profitable business, you definitely need to contact your tax advisor to ensure that you don’t miss out on this valuable deduction.

• The C-Corporation tax rate for 2018 changed from rates of 15% to 35% to a flat 21% on all income. This may cause some business owners who are now taxed as S-Corporations or partnerships to convert to C-Corporations.  However, business owners should remember that any earnings taken out of a C-Corporation and transferred to the business owner will be taxed again, often referred to as double-taxation.  Plus, C-Corporations do not qualify for the new 20% business deduction discussed above.  This means in general that it is still better to remain taxed as an S-Corporation or partnership.  This is a complicated decision so please meet with your tax-advisor.

• Businesses providing paid family or medical leave to employees qualify for a new credit of generally 12.5% of wages paid for family and medical leave. This credit is only for 2018 and 2019.

The bottom line?  With all of the tax changes for 2018 and beyond, it is essential that you meet with your tax planner before year's end to make sure you pay the lowest amount legally allowed.

 

Before you do anything else, why not join The Profit Maximizer Club on FaceBook.  This community is designed to help each other grow their profitable dream business.  Click here to request to Join! (http://bit.ly/SmartProfitCommunity).

In this group you may feel free to message me directly if you have a question or need help. I am a CPA that has been working with small business owners since the late 1970’s. There is a very good chance that either my clients or I have faced your problems before and I can help you avoid our mistakes and repeat our successes..

Be sure to check out my blog, “Small Business Profit Maximizer!” Where I share these videos and other ideas you can use to make this your most profitable year ever!  Click https://wjb-cpa.typepad.com/ to go to the blog page..

Also click on www.thesmartprofitmaximizer.com for our online coaching courses including the following free courses:

• Double Your business profits in 30 Days
• Turn to your customers when you need cash now.

Finally, if you have a question or wish to talk to me you can email me at [email protected] or call my office at 915-857-8158. .

Thanks so much and let’s make this our most profitable year ever!

Why Your Business Should be an S Corp

In this video we discuss why roughly 85-90% of small business corporations electing to file as an S-Corp and how are LLC's taxed.

Before you do anything else, why not join The Profit Maximizer Club on FaceBook. This community is designed to help each other grow their profitable dream business. Click here to request to Join! (http://bit.ly/SmartProfitCommunity)
.
In this group you may feel free to message me directly if you have a question or need help. I am a CPA that has been working with small business owners since the late 1970’s. There is a very good chance that either my clients or I have faced your problems before and I can help you avoid our mistakes and repeat our successes.
.
Be sure to check out my blog, “Small Business Profit Maximizer!” Where I share these videos and other ideas you can use to make this your most profitable year ever! Click https://wjb-cpa.typepad.com/ to go to the blog page.
.
Also click on www.thesmartprofitmaximizer.com for our online coaching courses including the following free courses:
• Double Your business profits in 30 Days
• Turn to your customers when you need cash now
.
Finally, if you have a question or wish to talk to me you can email me at [email protected] or call my office at 915-857-8158.
.
Thanks so much and let’s make this our most profitable year ever!

Help! I Just Received an IRS Audit Letter!

First, don’t panic.

The majority of audits are done by mail, focusing on one or two items.  The letter will ask you to mail in records and other information justifying the item they are questioning.  Simply include copies of your documentation and mail back with a letter explaining your documentation.

If it is a field audit, you definitely want to hire a tax professional to represent you.  I once was at the local IRS office representing a client when I overheard an IRS agent in the next office asking a taxpayer a series of questions.  His answers to the agent made me cringe multiple times! He didn’t know the law and was just opening up even more areas for the IRS agent to question.  He also volunteered information the IRS agent wasn’t asking for.  Never, ever expand your answer!  Stick to answering the question asked.

Next, make sure you are prepared.  Organize your records.  Don’t show-up with a bag full of receipts.  Only provide documents for the items in question.

Finally, don’t automatically agree to any assessment from the local agent.  I have been involved in many cases where we won a contested item at the appeal level.  Remember, the local agent’s job is to throw out deductions and increase your income in order to increase your taxes owed.  The appeals officer’s job is to settle the case.  They are much more likely to consider an argument or take alternative documentation that the local agent rejected.

My best piece of advice is to get help from a tax professional who has experience dealing with the IRS.  This is one time where representing yourself can be a grave mistake.

How Do I Pay Less Taxes?

Reducing your income tax expenses is a key component of profit maximizing.  Remember your bottom line is your profit after income taxes. Unfortunately, very few business owners do anything to reduce their income tax bill.  Most business owners assume that all they have to do is turn their records over to their tax preparer and their job is done.  Then they complain when they owe the IRS up to half of their profit.

The truth is the smartest business owners focus on finding legal methods of reducing their tax hit.  These business owners pay a much smaller percentage than the average business owner.

Smart Business Owners Prioritize Tax Planning

Why should every business owner take tax planning seriously?  Tax planning is one of the few guarantees a business owner will ever get.  You’re guaranteed to pay less in taxes, unless you had a loss in your business; even then, I might be able to get you some money back from taxes you paid in prior years.  But if you’ve got a business and you’re paying taxes, it’s a rare thing indeed if I can’t come up with some completely legal ways for you to save money.

What I commonly hear is, “I’m way too busy.  I don’t worry about tax planning.  I hire a good CPA.”  What they fail to understand is that there are considerably fewer things we can recommend after the year ends to cut their tax bill.  It’s like Cinderella at the ball—once midnight comes, her dress goes back to rags, the horses go back to being mice, and the fancy carriage goes back to being a pumpkin.  That’s how it is with tax planning.  Once it’s January 1, it's history.  All I can do at that point is report your information correctly in a way that minimizes your tax as much as possible.  But the number of arrows in my quiver is vastly reduced.  There are some things I can do, but not a lot.

So how much can you save?  Well, in just the last two years we legally saved our tax blueprint clients $3.29 million dollars in taxes!  That is $3.29 million dollars that the business owners were able to use to expand business, fund retirement, pay down debt, hire key employees, take that dream vacation, and much, much more.  I’m pretty sure the business owner had a much better use for it than the federal government.

And every single thing we did was legal and clearly outlined in the tax law.  (I like my clients, but not enough to share a jail cell with them.)

Why does tax planning work?  It works because it gives you time to do things with your business that you can’t do after the year ends.  It’s really just a matter of being proactive before the year is over, rather than reactive and just dropping your stuff off at your tax preparer sometime in the spring.

Smart Business Owners Call Their Tax Advisors Before Making Major Financial Decisions

Smart business owners always run their ideas by their tax advisors first.  Every CPA and tax preparer can tell you a story about a taxpayer who did something and just didn’t seem to think it was important to ask us about the tax consequences rather than listen to their golf buddy.

One of my favorites is a gentleman who was 59 years, 4 months old.  His golf buddy told him that he could take money out of his IRA without penalty once he turned 59, so he did.  Of course, he didn’t bother to call me.  Heck, what do I know about taxes, I’m just the CPA who had been doing his tax return for over 10 years, right?  So when I did the tax return, I showed him the law.  In order to avoid penalty you must be 59 and a half.  He was about six weeks too early.  So, because he relied on his golfing buddy rather than his CPA, this taxpayer cost himself over $5,000.

Smart Business Owners Keep Good Records

If you don’t have good accounting records, I can almost promise you that you’re overpaying tax.  You’re not recording all the cash that you spent.  You’re not keeping track of items that you paid for out of your personal account.  You’re not thinking of the purchases you put on a credit card.  You can’t defend yourself if you’re audited because you don’t have any documentation to support your deductions.  Without good accounting records, you’re simply going to pay more in taxes than you are legally required to pay.

Smart Business Owners Start on Their Taxes Early

If you plan to show up between April 1 and April 15 with a complicated return, you’re better off waiting until May or June.  You want your tax preparer to have time to prepare your return accurately.  When we make a mistake on a return, it’s almost always on a return we are preparing just a few days before the deadline.  We try like heck not to, but when you’re buried and you’re under the gun, especially before the extension deadlines in September and October, a mistake is simply more likely to occur.  I don’t even call those mistakes.  A lot of times, we are forced to make an estimate just to get a return done, and then the information comes in later.

Smart Business Owners Save For Their Taxes As They Earn the Income

If you know you’re going pay $30,000 or $40,000 every year, there’s no good reason to wait until June to look for the cash.  You’re going to pay taxes.  That’s just the nature of the beast.  We’re not saying we’re going to eliminate taxes.  We’re saying we’re going to do our best to make sure you pay no more than you are legally required to.  We’re going to minimize your taxes.

Start saving now!  Make quarterly payments!  If nothing else, put the money in a savings account.  This does two things.  First, it takes the stress out of coming up with a large pile of money when you file the return.  It is much easier to transfer $250/week to a tax savings account then to pull $13,000 out of your operating account on tax day.  And by paying your taxes on time, you will save lots of money on penalties and interest for failing to pay your taxes.

Is Tax Software The Same As An Accountant?

Although it isn’t close to tax season yet, it is really never too early to start thinking about your options. As people try to save money and do things on their own they may be tempted to try out the different tax preparation software on the market today and save some cash by not going to an accountant.

However, before you decide if going to the software is really your best option think about the following:

• Basic isn’t always best – the software offered for free or at a very low cost is basic tax preparation software. It is not the same software that is used by your accountant and there are very definite limits on the features that you have access through with the software.

• Questions – while most software has an FAQ section it is often very simplistic and really has to do with how to use the software, not specific tax questions. If you call the hotline offered with some tax software you are not likely to actually speak with a CPA but you will be speaking to a tax preparer. This may provide you with a less than complete answer to a more complex question.

• Past tax filing – when you use an accountant through the years he or she becomes very familiar with your regular deductions and your various 1099s and W-2s and may help you catch an error or omission that may end up causing a delay on your return or, worse case scenario, an audit notice.

• Offers ideas for tax savings – when you have an accountant prepare your taxes she or he will meet with you for a review before e-filing. This allows you a chance to discuss possible options for tax savings for the upcoming tax year.

In addition, working with an accountant is a must if you are self-employed or own a business of any size. These can become very complicated tax returns and making a mistake can end up costing you much more than the cost of an accountant.

Tax Tip of the Week: If I barter my products or services do I have taxable income?

The fair market value of property or services received in barter is taxable. But, it may not result in an increase in taxable income based on how what you received is used.

As an example, we trade accounting and tax services with an office supply company. We must include in income the fair market value of the office supplies received. But, we also get to deduct these costs as office supplies expense since they are used in our business.

But, when we trade accounting and tax services for a family photo we still have taxable income but we cannot deduct personal expenses. This results in an increase in taxable income in the amount of fair market value of the family photo.

Like all tax law there is an exception to the general rule. An informal exchange of similar services on a non-business basis is generally non-taxable. An example of this is carpooling.

Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.