Today, I want to bust one of the biggest myths in the small business world—that reducing your tax bill is your tax preparer’s job. What if I told you, it’s yours?
Here’s what typically happens. A business owner gathers up their paperwork—maybe even tosses a shoebox full of receipts into the mix—and drops it off at their tax preparer’s office. When the tax return comes back with an unexpected tax bill, the shock sets in, and the finger-pointing begins.
So, they fire the preparer, find a new one, and repeat the same process the following year.
Guess what? The problem isn’t your tax preparer—it’s your approach to handling taxes. In fact, you took the real problem (you) to the new office, too.
The hard truth that successful business owners eventually learn is this: Uncle Sam is your silent business partner, and he’s the worst kind. He doesn’t contribute a dime to your business, yet he demands a hefty share of your profits—often a third or more.
But there’s good news: Taxes are just another business expense, and like any other cost, they can be managed. It just takes a little planning, and a little strategy, but it’s doable.
So, here are six proven steps smart business owners use to cut their tax bill in half—or more:
1. Do Tax Planning Throughout the Year
If you wait until tax season to think about taxes, you’ve waited too long. By January, most of your opportunities to reduce your tax bill are in the rearview. Smart business owners schedule mid-year and year-end tax planning sessions, which is when the real savings happen.
2. Call Your Tax Advisor Before Big Decisions
Buying property? Selling assets? Opening a new business or pulling money from your retirement accounts?
Call your tax advisor before making any of these major financial decisions. Smart business owners don’t like expensive surprises. You should understand the tax impact of your decisions ahead of time. This prevents you from being blindsided once it’s too late to do anything.
3. Keep Solid Accounting Records
Good tax planning starts with good bookkeeping. If you’re handing your tax preparer a box of receipts a week before the deadline, you’re doing it all wrong.
With the technology that is available to business owners today, there’s no excuse not to have clean records. Accurate accounting ensures you can deduct everything you’re entitled to. That means less money to Uncle Sam and more to reinvest in your business.
4. Get Your Records in Early
Last year, I cranked out nearly 50 returns in the two weeks before the October extension deadline. Those clients got their returns filed, sure—but not much in the way of personalized tax-saving strategies.
The clients who reached out early? They got the best planning, advice, and, ultimately, tax savings. The earlier you start working with your tax preparer, the more they can help you.
5. Save for Taxes as You Earn
Uncle Sam has a motto: “Pay me now or pay me more later.”
Smart business owners don’t just make their estimated payments; they also stash money away for taxes. The savviest business owners set aside a percentage of their earnings in a separate savings account each week.
Pro tip: Take last year’s total tax bill, divide it by your total sales, and put that percentage away every week. You’ll never be caught off guard again.
6. Learn the Basics of Tax Law
While you don’t need to be a certified public accountant (CPA), you should at least have a very basic understanding of the US tax code. Knowledge is power. In this case, it’s also profit.
A few of my clients were skeptical that these steps could really save them big money—until they followed them and saw the numbers:
- A consulting company slashed their tax bill by $244,675—over 54%.
- A retail business cut theirs by $108,627—a whopping 68% in savings.
- A dental office saved $25,578—29% less than their original estimate.
Imagine getting a check for $25,000, $100,000, $250,000, or more, reinvesting it back into your business, and the potential impact that could have. Take tax planning seriously and you’ll take back control of your money!