In our article: Bookkeeping Services for Small Businesses we discussed how outsourcing your business Accounting and Tax reporting to a professional firm can result in significant benefits beyond just saving time and reducing stress. In this article however, we will discuss in greater detail when outsourcing your business bookkeeping and tax filings is not enough and when it is time to consider hiring a firm that provides advisor and year-round tax planning services.
Maintaining accurate accounting records and filing your Federal and State Tax returns on time are essential to keep your business in compliance and avoid significant fines and penalties. However, we often meet entrepreneurs that despite running a successful business and hiring a firm to handle their bookkeeping and tax preparation filings, are still frustrated with unplanned high taxes. With year-round tax planning your accountant will help you identify and implement tax saving strategies unique to your individual situation, and help you be fully prepared for any upcoming taxes that might be due.
When should I hire a firm that provides advisor and year-round tax planning services?
Your Business is Generating Consistent Profits Each Year
If you are managing a successful business and are generating consistent profits each year, you need year-round tax planning to help you identify ways that you can legally reduce your tax liability this includes:
- Selecting the best entity type for your business.
- Taking advantage of all available tax deductions.
- Defer income when possible so that income is taxed at the lowest possible rate.
- Choosing the right accounting methods for your business.
- Selecting the best deprecation methods.
You Had an Unexpected Tax Bill This Year
If you received an unpleasant surprise at tax time in the form of a huge tax bill you were not expecting, chances are you need year-round tax planning services. An important part of Tax Planning is to proactively project your future tax liability before the end of the year, this will help you by:
- Knowing what your overall tax bill will look like before April 15th giving you time to prepare for a large cash outflow.
- Proactively send the appropriate amount of Quarterly Estimated Tax Payments to the IRS, and when necessary to your State, to avoid underpayment penalties.
You Experienced a Life Change
Life changes directly impact your overall tax situation, which can result in either higher or lower taxes. If you plan or currently experience the following changes, it might be best to work with a firm that provides year-round tax planning to assess how these changes will impact your taxes:
- Family changes
- Purchasing Rental Properties
- Approaching Retirement
- Major changes in Income
- Relocating to a different State
- Child college planning
- Retirement planning
You Are Impacted by Tax Law Changes
Recent tax law changes have made it more challenging for individual taxpayers to itemize their deductions. Taxpayers in high tax States were negatively impacted by caps on deductible State Income Tax paid. If you are one of these taxpayers, a year-round tax planning can help you implement strategies that would allow you to maximize your State Tax payments and overall tax deductions.
You Are Selling Your Business
If you are a business owner planning your next great adventure and have decided to sell your business, you should consider working with an accounting firm that provides year-round tax planning to help you properly evaluate potential strategies that could minimize your tax exposure as a result of selling your business.
To truly reduce your taxes, you need a tax plan and an accounting firm that takes a holistic approach to your personal and business finances. By going beyond just tax preparation and by working with a firm that implements proactive year-round tax reduction strategies, you will minimize your tax liability and keep more of what you earned.