Each of those keywords above has an important place in effective tax planning. There is a language to taxes, and unfortunately, only accountants have been primarily taught that language. Often a business owner wants to know what they don’t know when it comes to keeping more of what they make. After all, it’s not how much you make, but how much you keep. Making sure you’re reducing your taxes and keeping as much of your money is key to building long-term wealth for yourself and those you care about.
Below are some key areas you will learn about in our Tax Essentials workshop that are a few key strategies that take place in between the 5 factors that determine your tax position.
Entity selection & Pass-through entities – This relates to understanding entity selection and how you get money in and out of your business. Understanding when you pay taxes, and how you are taxed, and how to distribute the profits back to yourself, are all key elements in this equation to make sure you can get money in and out most efficiently. The S Corporation is a common vehicle for tax efficiency today. As President George W. Bush said in one of his presidential debates, “Most small business are a Sub Chapter S”.
In our workshop we will learn more about entity selection and the key considerations. We will also discuss the difference between an S and C Corp, and why many small businesses choose the S Corp option for its tax advantages, and when those advantages become important for you to start considering electing into with that option. Timing is always a consideration in tax planning.
How pass-through income works and when do you pay taxes when you earn the profit or distribute the earnings – Understanding the timing of your tax payments, estimates, and cash flow of your distributions is key to those profits being converted to real live cash in your personal checking account.
Maximizing & Substantiating Deductions
An audit trail to substantiate and capture all expenses:
- Make sure you have a receipt for each expense. Without it, it can lead to challenges.
- Along with the bank or credit card statement for example
- Make sure you are keeping track of mileage to maximize your deductions.
Tax Questionnaire – Make sure you are using a simple tax organizer/questionnaire. You can find ours at www.ewhsba.com/wp-content/uploads/Client-Instructions-web.pdf This organizer will help you with a simple Yes-No format. Capture any deductions that might be applicable to you to give you peace of mind you covered your bases and checked off all the boxes.
The following will also take you to our tax center where you can find more information on utilizing this tool https://www.ewhsba.com/tax-center/
Personal Tax Vehicles for Savings
HSA – For those eligible for a Health Savings Account this is a great way to save money for future healthcare- related expenses and reduce your taxable income at the same time, thereby reducing your taxes.
Retirement Plan Contributions – Different retirement plans work differently many you can deduct pre-tax, reducing your amount of taxable income in that year. Others you can put money in after-tax and then when you take it out the growth is tax free.
In EWH’s Tax Essentials Workshop we will talk about how the mechanics of both these vehicles work.
Business Tax Vehicles for Savings
Section 179 – A way to speed up Deprecation and expense more of the equipment you purchased in the year you put it into use. However, you should also be aware of other tax planning considerations impacting why you may or may not want to take Section 179.
Cost Segregation Study – For those that own a building, this is a way to speed up the Deprecation on the building.
Cash and Accrual Accounting – Keeping score for tax purposes.
Other Tax and Cashflow Consideration
Loans – Most owners do not know when you pay off your note(s), it doesn’t reduce your profits, and therefore doesn’t reduce the taxes. But, without knowing that they make a payment and later find out they still owe. Here we will talk more about how this works and why.
These are 10 important tax planning strategies to discuss with your Accountant. Keep in mind, each depends on your situation and all have their unique rules. This list gives you a great platform to start the conversation and to further learn more. Attend our Tax Essentials course where you will learn more about how each of these strategies works, and can help you be more tax-efficient, minimize your income and reduce your taxes.