It is true that the average American loses more money to taxes each year than we do on food, clothing, and shelter combined. This forces people to take the steps needed to take control of protecting their bottom line from taxes with proactive tax planning.
So how exactly do you know if you are overpaying in taxes? The good news is there are simple steps you can take to find out. To gauge your risk level of lost tax dollars, here are 8 signs to help you measure your risk potential:
1. Recordkeeping:
Bad Sign: You do not have good bookkeeping systems in place: You must know what is coming into and going out of your business each month if you want to keep track of your monthly expenses, so you don’t easily lose out on some legitimate tax deductions! Having accurate and timely financial information not only helps you to manage and grow your business, but is also the foundation for an effective tax savings plan as well.
2. Communication:
Bad Sign: If you do not meet with your tax advisor throughout the year, plan on paying higher taxes. Year round Proactive planning means paying the least amount of taxes possible. Don’t wait until April 15th to reduce your taxes because you have probably missed out on some big tax saving opportunities. Open the lines of communication with your tax advisor to ensure you are maximizing your tax deductions throughout the year. Some of the most significant and impactful tax saving opportunities need to be implemented as part of your business’ operational system.
3. Knowledge
Bad Sign: You have to explain your business operations to your tax preparer year after year. You need a tax expert that specializes in your specific industry. For example, tax saving opportunities for people in the real estate business are not the same as special tax strategies for those in the manufacturing industry. Make sure your tax advisor is well versed in the tax saving opportunities in your industry.
4. Compensation
Bad Sign: You don’t have a plan on how to tax efficiently take money out of your business. There are tons of different ways to take profits out of your business and each of them has its pros and cons. For example, if you are a C Corporation, you may save thousands of dollars in taxes by paying yourself a higher salary every year. If you are an S Corporation, the opposite may be true where you can save thousands to tens of thousands of dollars by paying yourself the least amount of salary possible. There are also some great ways for you to extract profits out of your business completely “Tax Free”. If you don’t have a plan in place to know “how” to extract your company profits tax-efficiently, you may be overpaying your taxes.
5. Retirement Planning
Bad Sign: You are not currently taking advantage of tax-deferred and/or tax-free opportunities of retirement planning through your business. Are you using retirement planning to significantly reduce your taxes currently? There are so many different types of retirement accounts that are available for business owners to save taxes today and save for retirement at the same time. If you pay taxes to the IRS and have not used retirement planning techniques in the past, you are probably overpaying your taxes.
6. Fringe Benefits:
Bad Sign: You have never heard of the term “fringe benefits”. There are tons of tax free fringe benefits available where your company takes a tax deduction for perks they provide to you as the business owner (and it’s not taxable to you). There are over a dozen of these wonderful techniques including company cars, gifts, and Medical Savings Account to name a few. If you do not utilize tax free fringe benefits as part of your business planning, you may be overpaying your taxes!
7. Personal and Business Deductions:
Bad Sign: Not knowing what items you can legally move from your personal use into legitimate business deductions. Do you use your personal cellphone for business? How about your car or computer? All these personal items that you use day in and day out for your business may be legitimate tax deductions. If you don’t know how to shift personal items into business deductions, you may be overpaying your taxes!
8. Tax Savings Plan:
Bad Sign: Not having a tax savings plan in place to ensure you and your business profits are protected from Uncle Sam. Incorporating all of the items we discussed above, the question you should be asking yourself is “What is my tax savings plan?” If you don’t know it, if you can’t verbalize it, then you probably don’t have one. Not having an overall plan on “how” you will save taxes for your business and you personally is the most common mistake costing taxpayers to overpay taxes year after year.
If you have answered No to one or more of the above, then you may be part of the thousands of business owners in the US who are overpaying in your taxes. In case you didn’t know, the only way to legally save taxes is with proactive tax planning. As we all know, it is not as important how much money we “make” rather how much of it we get to “keep”!
Don’t overpay your taxes!. Let us work with you to figure out the best solution for your tax situation. Contact us for a FREE consultation at 1.888.502.3767
