Who in their right minds want to GIVE their money away to Uncle Sam? Not I! But it’s amazing how many businesses owners give money to the taxman unnecessarily or unknowingly. Imagine how much cutting taxes can affect your bottom line!
Cut Your Taxes in Half in 6 Easy Steps. Too many small business owners believe that hiring a good tax preparer is the secret to paying lower taxes. The typical small business owner believes that their work is done and they can move on to other things once they drop off their information at their tax preparer’s office.
They don’t do anything to control tax costs during the year, which leads to a nasty surprise when they get their tax return and end up paying a much higher tax liability than they expected.
Then they get mad and blame their tax preparer and promptly go hire a new one. Of course, this doesn’t change anything, since they took the source of the problem with them to the new tax preparer.
The truth successful business owners learn the hard way is that Uncle Sam is your partner! But he is a bad partner! He does little work in the business and demands a third or more of the profits.
Smart business owners also understand that income tax is an expense like any other. Thus, it can be planned for and managed.
- Smart business owners take mid-year and year-end tax planning seriously. After the first of the year, there is very little that can be done to reduce taxes. Before the end of the year is the only time a business owner can effectively reduce their tax liability. Many tax preparers do no tax planning at all. Be sure to look for a tax preparer that is very busy in December doing tax planning. Make sure though that they are only using legal methods of reducing income taxes. You are ultimately responsible for any future audit liability.
- Smart business owners call their tax advisor before doing any major transactions. They call before selling assets, opening a business, or taking money out of retirement accounts. Since they know in advance the tax consequences of their actions, they don’t “shoot the messenger” when they get their tax return and discover how much they owe.
- Smart business owners keep good accounting records. They don’t drop off shoeboxes full of receipts to their tax preparer. They understand that good accounting records ensure that they can deduct everything that is business related. With current technology, there is no good reason not to have good records in order to prepare your tax return.
- Smart business owners get their records to their tax preparer early. Last year I prepared close to 50 returns in the last two weeks before the October extension deadline. There was no way that they could have received the same amount of help with reducing their taxes as I was able to give to clients earlier in the year. Smart business owners understand this, and make time to meet with their tax preparer as early as possible.
- Smart business owners save for taxes as they earn the income. Uncle Sam’s motto is, “Pay me now or pay me more later.” Smart business owners make their estimate payments. The smartest business owners put an amount into a savings account weekly that represents how much they will owe. (Hint: Divide your total tax liability last year by your total sales from last year. Put this percentage amount in a savings account weekly.)
- Smart business owners get a basic understanding of the income tax law. They don’t become experts, but they do learn how the system works and how they can use it to their advantage.
Many of my clients are very skeptical that these six steps can really cut their income taxes by such a large amount until I show them my Excel worksheets, all from real clients, that show significant savings:
- Consulting company: $244,675 (54.49%) tax reduction from the first estimate.
- Retail company: $108,627 (67.77%) tax reduction from the first estimate.
- Dental office: $ 25,578 (28.71%) tax reduction from the first estimate.
Imagine what you could do even with “only” saving $25,000! Do you really want to continue overpaying your taxes when you now know how to reduce them?