You work hard, provide an invaluable service, and your clients love you! Yet, when you look at your earnings, you realize a very large portion goes to the IRS. In fact, Uncle Sam might be taking 40% (or more!) of your income.
You may be wondering if there is a way to legally lower your tax liability. Of course, you want to pay your dues – you just do not want to be overpaying!
There is a way to lower your tax burden – at times substantially – and it is called tax reduction planning. Tax planning involves an analysis of your financial situation to determine, and implement, strategies that will decrease your tax liability. A lowered tax burden frees up resources for retirement contributions, growth, expenses, or investment – i.e. all the things you deserve in return for your hard work!
Tax planning is NOT the same as income tax preparation
Many business owners assume tax planning is the same as income tax preparation, but that could not be further from the truth. When preparing an income tax return, a tax preparer looks at past documents to calculate whether you paid enough in taxes throughout the previous year. The preparer determines whether you owe the IRS money or will be receiving a refund. It is a passive and historical approach.
Tax planning looks into your future in order to determine what you could be doing in order to lower your tax liability. It is not a passive process. Could you be contributing to an IRA? Are you deducting everything you are eligible for? Are there any business strategies you could be taking advantage of? Is there a better way for you to be making charitable contributions? Do you qualify for any advanced tax reduction strategies? Any tax credits you should be claiming?
Your current tax preparer may not specialize in tax planning; this is very common. Just like doctors, engineers or IT professionals have different specialties, CPAs also specialize in different fields. Just because a tax preparer does a great job preparing your income tax return does not mean they can help you lower your tax burden.
Want to find out more about how tax planning can help you and your business? Schedule a consultation.