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These Tax-Planning Mistakes May Be Costing Your Business

Forbes Finance Council

Karla Dennis, EA, MST & CEO of The Award Winning Tax Accounting Firm Karla Dennis and Associates Inc. — Specializing In Tax Planning

Whether you are a business veteran or are just starting out, it’s important to learn from the mistakes of others to shorten your learning curve. To make sure you are making the best decisions for your business, I put together common tax-planning mistakes business owners make and how you can avoid them. Avoiding these mistakes may end up saving you time, headaches and money.

1. Waiting Too Long To Track Expenses

Many business owners go about their day-to-day business and wait until the absolute last minute to track their expenses, typically around tax time. That’s like in school if you don’t study all semester but wait until the last minute to cram before the final exam. However, if you were to study and do homework all semester long, you would most likely be well prepared and ace the exam.

This same idea applies to your taxes. If you spend time on your taxes throughout the whole year, tracking your income and tracking your expenses, chances are you are going to maximize your expenses, not forget about anything and get great tax deductions. To ace your tax planning, schedule 30 minutes to an hour to track your expenses and income on a regular basis, either weekly or biweekly.

2. Not Taking Advantage Of Available Resources

The second mistake business owners make is not taking advantage of the resources and information available to them. Oftentimes, individuals get stuck in analysis paralysis, which prevents them from completing their taxes or bookkeeping. If you are in that boat, you should be speaking with your tax person all year long — not just from January through April — to discuss your thoughts and questions regarding your tax compliance and accounting. If you are looking for online resources to help answer your tax/accounting related questions, TaxTopics.net has a nice list of common tax issues and resources related to those. 

3. Not Understanding The Difference Between Tax Compliance And Tax Planning

It’s also important to understand the difference between tax compliance and tax planning. Tax compliance season goes from January through April and is where tax professionals gather your data so they can prepare your return strictly for tax compliance (or what we in the industry call emergency room tax preparation). If that is the first time you see your tax professional or accountant, you may be leaving thousands of dollars on the table because you didn’t study and keep track of your expenses all year long.

Tax planning involves creating unique strategies for you to save money on taxes and leveraging the tax codes. To help you do this, your tax professional will ask you questions about your lifestyle, family and goals/vision for the future.

Some tax professionals specialize in both, but the majority specialize in one or the other. If you are looking to maximize your tax savings, make sure you’re engaged in tax planning.

4. Not Preparing Before You Meet With Your Tax Planner

If you already work with a tax-planning professional, make sure that every quarter, at a minimum, you meet with them to discuss strategies for minimizing your taxes. To get the most out of your relationship with your tax planner, come to them prepared so you are armed and ready with important questions. You can ask them about requirements from your state/locality, request for them to define what certain tax laws mean, plan for retirement or even discuss the best ways to make major purchases in the upcoming years for tax purposes. Create a list of questions before meeting with your advisor to ensure a polished tax return and clear strategy that will help you make informed business decisions.

Remember: It is important to think of your finances all year long, access the resources available to you and make sure you are planning your taxes. There are strategies you can deploy in your business to help lower your taxes to keep more money in your pocket and out of the hands of Uncle Sam. Make sure you’re working with a trustworthy tax professional who can consult with you to help maximize your tax savings all year long.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.


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