You know the phrase ‘How you do one thing is how you do everything’?
Kind of like if you never make your bed, or you eat poorly in the morning or you skip steps at work and ignore some of the processes.
You tell yourself – it’s good enough…this oversight or mistake doesn’t matter too much.
By having this mindset you are telling yourself (and others) subconsciously that you don’t really respect your space, your boundaries, or your work, etc.
Well, what if HOW you plan for your taxes is affecting your business, your profits, and your bottom line?
Because I guarantee that is true.
1 – You Hope For The Best & Trust Your Tax Preparer Is Getting You Every Deduction
Just like you’d question your doctor, ask for a second opinion, and do some research yourself to get as many details as possible when diagnosed with something. The same goes for your finances and taxes.
It’s important to do the research and understand WHAT is possible to deduct, and what strategies you can take advantage of.
You can ask for a second opinion and go to another tax professional. And you can reach out to an expert. Instead of using a tax preparer, you can contact a Certified Tax Coach and Enrolled Agent.
Tax planning is actually a process of looking at various tax options in order to determine when, whether, and how to conduct your business transactions in such a way that your taxes are considerably reduced. Since a reduction in taxes due translates directly into money in your bank account, it is a step worth taking.
A professional tax planner works out a personalized strategy to help you accomplish the following things:
- Reduce the amount of your taxable income.
- Lower your tax rate.
- Claim all legal, available tax credits for you.
- Control when and how you have to pay taxes.
- Minimize tax penalties and pitfalls you might encounter when dealing with the IRS.
Additionally, a tax planner can help you find out how your business income will affect your personal income. This is something that many small business owners have trouble with, as it is often difficult to discern the difference between the business net profit you see on your P&L report and the taxable income that shows up on your tax return.
The same goes for the profits of your business. As a Profit Coach, using the Profit First Method, I show service business owners how to understand the numbers and empower them to cut costs and then plan and boost profits. It CAN be done! I’ve gained my clients more than $3.5M in profits and saved them $6.9M in taxes.
2 – You Always Have a Tax Bill and Just ‘Deal’ With It
Getting a big fat tax bill come April can hit you hard, especially if you haven’t planned for it.
All of a sudden it blocks your plans for growth, for the building you wanted to rent or purchase, for new vehicles, for investing back into the business or it may even cut into your own paycheck!
It affects your cash flow – and as you know cash flow is the lifeblood of every business. It can cause stress when you know you must pay suppliers or your employees.
It can prevent you from paying off some of the debts you have and also create MORE expenses (ie Interest fees and payments) which again affects your bottom line.
If you use the Profit First System, you utilize different bank accounts and put money aside to pay taxes every month. You PLAN for taxes so that you are able to control your own cash flow and profits!
Less stress, higher cash flow, and no big surprises!
The same goes for how much your business profits and how much money you can put in your pocket. Don’t assume ‘this is how much my business makes’ and that’s all there is to it. There are so many profit-building strategies that can be used to decrease expenses and empower you to increase profits and put more money in YOUR pocket. Book a Profit Planning Call with me and I’ll show you how.
3 – You Aren’t Aware Of Tax Strategies So Don’t Use Any
Ignorance is not bliss when it comes to taxes and profits, I’m afraid. Three main categories to bring your tax bill down are to DEDUCT, DEPRECIATE, and DELAY.
Everyone knows that tax is calculated on profit and on income. Everyone also knows that there are standard deductions that may come into play and thresholds that have to be exceeded before a certain tax rate applies.
When it comes to tax on profit, the company’s gross profit gets reduced by necessary overhead. That lower figure can be reduced even further by taking some of that net profit figure and investing it in an IRS-approved tax savings program.
Net profit can also be legally reduced in other ways. One simple example is to rent your home to your business for business-related functions. Another way is to utilize family members for some admin, marketing, or cleaning activities.
Many small business owners work extra hours doing basic things. Stuffing envelopes for the next mailshot, checking the incoming emails from the company’s website, filing paperwork, or just vacuuming the floors, are all examples of simple jobs that someone has to do. By getting your children to do these, you can pay them. The money stays in the family, your children contribute, the business’s costs go down, and so does the tax bill.
The list of deductibles is a long one. Seek professional advice on what to deduct to help you save money.
Capital expenditure items get depreciated over an IRS-approved period of time. The IRS allows some items to be written off in one year, and some things get written off over a longer period. Your tax adviser will know how to make the most of these options.
Real estate improvements may be depreciated to reduce the tax bill. Land cannot depreciate, but the buildings, fixtures and fittings can. If the business owns the building or if the business owns, say, rental properties then these are depreciated, thus lowering pre-tax profits.
There are many ways to delay paying taxes. One is to invest some of the business’s pre-tax profit into a retirement plan, such as a SIMPLE IRA or 401(k). The business’s taxable profit goes down this year, thus reducing the tax bill, and the tax on that money will not be due until it gets withdrawn in some years’ time.
Just like Tax Planning – you can PLAN for PROFITS in all areas of your business. You can understand the TRUE cost of your employees, you can do a Tool Audit and save $10-50k with that alone! (many of my clients have). You can create a plan to eradicate debt and understand your numbers so you can do MORE of what works and less of what is creating profit leaks.
What is your first step? Book a Profit Planning Session with me. We’ll look at what your major profit leaks are and plan better for next year so that your tax bill doesn’t feel like a crippling jail sentence.