Realizing that your biggest personal and business expense, bar none, is taxes can be quite a shock. Indeed, seeing so much of your hard-earned money end up in the government’s hands can feel like a shakedown. Fortunately, focusing just a little time and effort on strategically reducing your taxes can pay huge dividends.
The first thing to note is that it’s not illegal to implement strategies to save on your taxes. Many people shy away from using creative tax strategies because they’re worried it’s going to get them in trouble. But as long as you do things correctly, strategizing to pay the least amount of taxes possible is neither against the law or otherwise risky in any way.
That said, it is illegal to evade taxes. As Martin Ginsburg (Georgetown Law professor and husband of Ruth Bader Ginsburg) likes to say, “Pigs get fat; hogs get slaughtered.” You want to be smart, but not greedy. And since right now is the most important time of year for tax strategy, this two-part series will discuss ways you can get fat, but not slaughtered.
Laying the foundation
The first step you should take to save big on your taxes is to build or rekindle your relationship with your team of financial professionals. These individuals will establish the foundation needed to develop and implement your tax-saving strategies. At the least, this team should include a bookkeeper/financial manager and a tax advisor (Certified Public Accountant or Enrolled Agent).
If your bookkeeper’s job is more about data entry than financial management, you should look for someone new—or quickly get your current staff trained and up to speed. An effective financial manager will be managing your books on a week-to-week basis (if not daily, depending on your business). Note I said “week-to-week,” not month-to-month or quarter-to-quarter.
You financial manager’s responsibilities should include daily/weekly cash-flow management, monthly review of reports and categorization of expenses, and quarterly updates of your forecast and projections.
Your tax advisor is the individual who actually files your taxes. Ideally, you should meet with him or her at least twice a year, once in May/June (after tax season) and once in October/November (approaching year’s end).
The May/June meeting is a general catch-up, mid-year review that lets your tax advisor know what you’re financially on track to do for the year, allowing him or her to start considering an effective strategy.
When you meet again in October/November, that’s when you’ll really get down to business. You’ll project cash flow through the end of the year and get a tax estimate using different assumptions both with and without tax-saving strategies included.
If your tax advisor cannot provide this level of service and is merely a tax filer, it’s time to find a new advisor. We can help you with that, so contact us today if you realize you need a creative tax advisor who’s capable of handling such things. And for many of our clients, we meet regularly with them and their financial management team to ensure their financial strategies are supported with legal implementation. If you’d like to consider how we may be able to support you in this way, contact us.
In the next part of this series, we’ll discuss how to best develop and implement the creative strategies you need to keep more of your money in your hands and out of the government’s. Until then, contact us if you have any questions about what you can do to reduce your upcoming tax bill.
We offer a complete spectrum of legal services for business owners and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer you a LIFT Your Life And Business Planning Session, which includes a review of all the legal, insurance, financial, and tax systems you need for your business. Schedule online today.