The 6 Tax tips costing you thousands!
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Tax strategies are a HUGE topic but we have boiled down 6 basic ones that many can and should consider.
- Taking 100% of allowable deductions this year! I know it sounds really counter intuitive, but let me explain. Very simply put, you don’t want to deduct something all in one year that you have financed over multiple years. It causes cash flow issues down the road. You end up spending the cash year after year and getting no deduction for it because you took it all in the year you bought it. Are there exceptions to this? Absolutely! If someone were to have an outlier year where they were to sell large assets for massive profits, it might be time to consider breaking this rule of thumb. (deductions need to follow cash)
- We have all heard the saying, an ounce of prevention is worth a pound of cure. Well it couldn’t be more true when it comes to preparing you and your business for tax time! Take the time to track your activity throughout the year rather than trying to comb through twelve months’ worth of business activity. Trying to remember twelve to fourteen months ago what happened. Get yourself a person, process or outsource those functions to someone who knows it better than you and has the time, knowledge and professionalism to get it done each month. You will thank your future self!
- Some people have major income or family changes and fail to plan for what that might mean for their tax situation. (ie. Spouse starts working, now they are dual income, a divorce will potentially change your filing status, a business may have a great year they didn’t plan for, etc.) We are going to get really cliché here, as GI Joe always said, “Now you know. And knowing is half that battle.” Fortunately, you get do overs every single year with regards to preparing your taxes. While amending your previous tax returns are possible, you can only go back so far to reclaim the money you mistakenly gave the government.
- Just because that LLC you setup twelve years ago was the right choice then, it doesn’t mean that it’s still the right choice. Tax laws change about as much as the weather these days. With the change of each administration, we see drastic tax law changes go into effect. If you aren’t evaluating your entity structure every few years, most likely you have been given the government a nice little bonus check each year. If you feel like you have worked harder for that money than they have, you may want to consider having your entity structure evaluated.
- Not utilizing the tax benefits offered to your local area. Believe it or not there are tax deductions, credits and grants out there right now, for your area or industry that you most likely aren’t taking advantage of. Many times certain geographic regions get certain tax or grant benefits offered through economic development offices or from the state government that can make a huge difference in your bottom line. You need to have a trusted professional who is committed to keeping up on these every year. Once again, don’t assume because there wasn’t something offered in the past, that there isn’t something you could use now. Go dig! They are there for the taking!
- Timing is everything. With your bill tax being calculated each year and doing a reset basically every three hundred and sixty five days. You can use that reset to your advantage. Control the timing of things or you will be forced to deal with the outcome, having exacted no driving force on it. For example, we have seen situations where clients have decided it was time to sell an asset and did so without our knowledge. They took the big shiny fat check to the bank on December 30th! Fully guaranteeing that they would be pushed up a tax bracket or two. We could have saved them a small fortune if could have advised them to take half the payment now and half a few days later in the next calendar year. That would have put their gain into two separate tax years, most likely saving them tens of thousands of dollars in tax.
These are just a few strategies that you can use to make life easier, less stressful and hopeful help you keep a little more of your hard earned money. If you would like us to delve into your tax situation, we are happy to have that conversation. Schedule a consultation and let’s chat!
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