For many people a tax advisor is synonymous with tax preparation. While this is an important aspect of what a tax advisor does, it is not the only function they can perform. In fact, a good tax advisor can be a very valuable asset to your business that is cash-flow positive. Not only can a good advisor provide insight on important financial decisions and assist with compliance issues, a good advisor can help put in place strategies that save your business money, or get back taxes paid through tax credits. There are many reasons to cultivate an ongoing relationship with your tax advisor beyond tax season. Here’s why your tax advisor is more than just a tax preparer.
The Full Suite Advisor Does More than Just Tax
Working with a tax advisor during tax season is a smart choice. It can save you a lot of time and money on your taxes. But did you know that you can get more out of the relationship with your tax advisor? Yes, some tax advisors solely work as tax preparers, but others offer a full suite of services including state and local tax guidance, estate tax planning, tax credit strategies, bookkeeping, cash-flow projections, and even work as a full-service outsourced CFO. Taxes can be a complicated thing, and they don’t stop with tax day. Tax and finance are ongoing processes that should be leveraged with ongoing expert advice for the best possible outcome; you increasing your cash flow to fuel your business’ growth.
Advice From Your Tax Advisor
Seeking advice from your tax advisor can help you better position your business financially. They can help you set at meet both short term and long term goals, which in the end is how your business grows. Some ways your tax advisor can help you outside of tax preparation include:
Having the right accounting process for your business is crucial. Ongoing business expenses must be tracked, you need a good system in place for invoicing, and accounts need to be reconciled. Having an accounting specialist who handles both your bookkeeping and your tax preparation is the best possible scenario. It allows you build trust, and helps save time and money. Even if you want to handle your bookkeeping yourself, it is still a good idea to seek the guidance of your tax advisor. They can help educate you on the process and recommend accounting software and tools to make the process easier.
Tax Laws and Compliance
Did you know that tax laws vary from state to state and city to city? This means if you conduct business in other jurisdictions, you could be susceptible to the tax laws in that locality. Working with a tax advisor can help keep you out of troubled waters when it comes to state and local taxes and tax compliance issues, and to take advantage of the difference in local tax rates (tax arbitrage) in certain situations.
You have several options when it comes to structuring your business, for example: LLC, Corporation, Sole Proprietorship, etc… Your tax advisor can help you identify the best business structure for your business. In addition to structuring your business to fit your needs, they can also help you with securing financing for your business, since banks and brokers rely heavily on tax returns. When seeking funds to grow your business, you will have to develop a business plan. A good advisor can work with you to help communicate the value of your business through projected cash flows, as well as your financial goals.
Tax planning is really important for the financial well being of your business. A tax advisor can assist your with a comprehensive tax planning strategy that puts you in the best possible position. This involves planning for tax deductions, timing expenses and income, tax savings, and calculating estimated tax payments. It also involves planning for the future, and preparing for exiting your business and understanding the tax implications that come with transition.
The Benefit of Tax Planning
As the name suggests, tax planning is all about planning your tax year. It’s a strategic plan, designed to help save you money and prepare a comprehensive approach to your tax and finances that ultimately, shows up on your tax return. One important tax planning strategy that can help you save on taxes, is contributing to your retirement accounts. If you are employed, and elect to make contributions to your 401(K) before taxes, you successfully lower your taxable income. Contributions to your IRA qualify as an above the line deduction of up to the maximum contribution limit of $6,000. This means you can take the deduction even if you don’t itemize. This is a really important part of your tax planning strategy, because you effectively kill two birds with one stone; A) you put aside money for your retirement and B) you effectively and legitimately lower your tax liability. If you are self employed, you can do a Self-Employed IRA which you can contribute to up to $56,000.
A tax savings account is another important aspect of tax planning. It is recommended to set aside at least 20% – 30% of your self-employed income for taxes. This helps ensure that you have funds readily available to meet your tax obligations. If you are self employed, and expect to owe more than $1,000 in taxes you will be responsible for remitting estimated taxes. These are quarterly tax payments due April 15, June 15, Sept. 15, and Jan 15. A tax savings account is a great way to meet these obligations, while collecting some interest on those funds. And the good news is that if you plan effectively, and your tax bill is less than you expected, you can use excess savings which you would have otherwise paid to the government.
Planning for tax deductions is also important when it comes to tax planning. Did you know that there are many tax deductions that get overlooked each year? This can leave thousands of dollars on the table. Your tax advisor will be able to educate you on which deductions are applicable to your business to maximize your tax savings. This may also involve timing certain purchases so you can take advantage of the deduction within a particular tax year. This is where the guidance of a tax advisor comes in handy.
Are you getting the most out of your relationship with your tax advisor? Talk to one of the tax experts at Tax Hack Accounting Group to learn more about the benefits of tax planning. To learn more subscribe to our newsletter.