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tax strategies

Taxes Need Year Round Attention

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tax planningGiving your taxes your full attention just once a year isn’t the best business or individual strategy.

Experts suggest that a year-round approach is better for your finances, unless of course you like paying more in taxes than you must!

Numerous tax experts agree that addressing your tax liability effectively requires planning throughout the year. Those business owners who reap the most benefits consider their taxes year-round, rather than waiting to focus on tax payments just a few weeks before the filing date.

With proper tax planning as part of your wealth strategy, you and your CPA will devise a plan to help you not only make money, but keep it as well. The IRS code is partially written on how to file and pay taxes, yet the majority is written on how to legally reduce taxes. This allows you to make better investment decisions.

A typical small business qualifies for roughly a dozen tax deductions. For example, you may be able to claim deductions on the following:

  • Cars operated for business purposes
  • Business-related travel and entertainment expenses
  • Purchases of office supplies, furniture, equipment, and software programs
  • Telephone expenses
  • Contributions toward insurance policies, retirement plans, and pension funds
  • Home office
  • Hiring children
  • Cost segregation

It’s surprising how many small businesses never take advantage of these (and other non-listed) deductions, mainly because they suffer from the “tax-planning-happens-but-once-a-year” syndrome. To fully benefit from these deductions, it’s important to maintain your expense records throughout the year.

It’s also important to meet with your CPA on a regular basis to discuss planning and set up proper strategies for your situation. There are advanced tax strategies that can be uncovered when you and your accountant can sit down and review all details.

Your goal should be to reduce your tax liabilities by retaining records of your purchases and determining the proportion of business costs in combined expenses. By monitoring your expenses closely all year, you can analyze each expense for its tax impact as it’s made. Additionally, smart business owners should contemplate three key steps to tax planning:

1. Invest in the most effective tax and accounting record tools for your business. Whether it’s spending a few dollars on journals or tax books with a set of refill sheets to do manual tracking (or utilize excel) or investing in the latest online software applications, you will benefit from more rigorous and accurate recordkeeping.

Sure, the initial investment could be significant, but regular monitoring should facilitate tracking expenses and making advance payments, which will save you money in the long run. This tips goes for both individuals tracking their personal finances and businesses needing an accounting software and remember businesses can deduct these expenses as they are necessary.

2. Determine when you need professional tax tips and planning advice. At times you will be able to justify paying for professional tax services, particularly if you need advice on unclear requirements in tax laws that could be in your favor.

To prevent unnecessary complications and aggravations, you must avoid violating tax laws that may be applicable to your small business. If you are unsure of these laws, using the tools at your disposal, such as current software and online recordkeeping, and complementing those capabilities with professional advice when needed, can help you keep your taxes under control.

You will know when you need help. Our CPA’s and tax preparers are trained to also know when you may require additional planning. When going through your tax information for preparation it’s not a bad idea to ask questions to understand where opportunities lie to save in taxes.

3. Establish year-round tax planning goals. A good tax-planning strategy will help you accomplish some of these goals:

  • Reduce the amount of taxable income
  • Claim any available tax credits
  • Lower your tax rate
  • Control the time when taxes must be paid
  • Avoid the most common tax-planning mistakes

Plus, a year-end review at the end of your fiscal year or “busy season” can be most effective if you’ve maintained clear records and an understanding of your financial position throughout the year.

When you meet with BGMF CPAs we may recommend monthly, quarterly or annual tax planning sessions to ensure you are taking advantage of every tax saving opportunity available. We set this based on your unique situation and whether you or your business needs planning more often rather than once per year.  Waiting until tax filing season may be too late to take advantage of the various tax savings strategies.

Click here to schedule a consultation to learn the best ways to evaluate the impact of taxes throughout the year.

Family Business and Next Generation

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family business next generationCreating a business that can be passed down to the next generation is a great way to build a legacy in the family and set up future generations.

Having your children work in the family business is a great way to teach your kids about work ethic and money management, and to kick-start their retirement or college savings plan.

It can also enable you to pay your children resulting in less taxes, providing a great tax planning strategy.

However, is having your children work in your family-owned business a blessing or a curse? Mixing business with pleasure and doing so with family can go from an exciting event to a decision you may regret (but not always).

Below are five tips for making it a blessing and preventing it from being curse:

Have them work elsewhere for at least five years. They need time to mature, becoming their own individuals, and to gain confidence learning and doing things as distinct human beings rather than just children of successful parents. Kids need to learn how to work, to be punctual, to earn their own money and to be held accountable. Everyone wins when potential successors have excellent training and gain skills and confidence outside the nuclear family.

Consider this scenario: A family-owned restaurant in a small town occasionally has three generations working together on a Friday night. The children are under the age of 16. Assuming that child labor laws have been taken into account, the family is content that they are passing on a tradition and family trade. The kids work one or two nights during the weekend.

In this example, the family is limiting the number of hours, and their expectations are reasonable. It’s a way for children to learn the family business and helps them gain self-respect. Indeed, one adult who remembers working with his mother in a greenhouse when he was 12 and 13 recalls that the job was hot, dirty and exhausting. However, he recalls he got paid for the work he did, and it gave him a greater appreciation for the work his parents did to support their family.

Understand generational differences. Today’s young people are far more likely to want to work to live rather than adopt their parents’ “live to work” attitude. That’s why your adult children don’t want to work 80-hour workweeks. Younger children and other employees are most likely looking for a different workplace experience.

With that said, if they have incentive to see the family business succeed, they will put the time and effort necessary to ensure this happens. Thereby, taking pride in the family business.

Give psychometric assessments to make their personalities/capabilities fit their jobs. One child may be temperamentally unsuited for a position demanding detail and strict deadlines; he or she may be more of a big-picture, laissez-faire personality. Assessing such things will go a long way to improving both business function and family harmony.

Hold them accountable, but not to an unreasonable standard. Give your kids crystal-clear roles and responsibilities and regular reviews so they know whether they’re living up to their job descriptions. The biggest morale killer in small businesses is under-performing or dysfunctional family members who are allowed to meander through various roles with virtually no accountability and to inflict themselves on others in your organization. In that case, pruning the family tree almost always results in improved business productivity.

Communicate formally and regularly with a third-party facilitator. Virtually every family employee thinks he or she works harder and contributes more than anyone else and stews over this. Family businesses have a greater need for formal communication to resolve perceived contribution issues, especially if you decide a family member is ill-suited to working at your company. You need to be able to discuss volatile topics constructively and productively. Seek the help of a talented facilitator to get the most from your family business.

It can be a wonderful experience for all involved to have your children work with you. Just remember that it’s a delicate balancing act that needs your attention.

BGMF CPAs offers consulting services to assist in situations surrounding family businesses.  Contact our team today to see how we can help ensure your family business is set up for future generations.