Tax Planning Strategies to Save Your Money
FAS CPA & Consultants
You can pay less tax if your accountant does proper tax planning instead of merely preparing your tax returns every year. Therefore, potential tax saving strategies should concentrate on these categories: Advanced Strategies, Deduction Maximization, Entity Structure Efficiency, Insurance and Retirement and Niche Strategies.
⇒ Time is money. Therefore your accountant has limited time to predict how much money tax planning can save you.
⇒ Begin by concentrating on core strategies.
⇒ Once he gets going as your tax planner, he will gather all the required information and develop more strategies to increase your tax savings.
⇒ Useful tax planning software is available.
Deduction Maximization
Example
By establishing a separate administrative office where a doctor can take care of his bookkeeping, billing, and review of patient files located at the doctor’s home, he will be able to deduct all mileage between his admin office (home) and his practice.
Your accountant’s likely questions
⇒ Do you work at home?
⇒ Do you have an office away from home?
⇒ Do you reimburse yourself for all the related expenses.
Tax planning software can quickly estimate the possible deductions you might be entitled to make.
Entity Structure Efficiency
Example
Most small American enterprises register under Schedule C. However, tax-wise, it typically does not make sense to remain under Schedule C. Significant tax savings are likely if you change to an S corporation, C corporation, LLC, or partnership.
Your accountant’s likely questions
⇒ What type of tax returns do you file?
⇒ How many entities do you operate?
⇒ Which types of entities are they?
⇒ How much income does each produce?
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Insurance and Retirement
Example
IRA accounts remain popular despite severely limiting contributions to $5,500 per year if you are under fifty-five years old. Change to a SEP or 401(k), and you can increase deductions to decrease taxes payable.
Life insurance remains non-deductible, but maximizing deductions for your health and dental plans will increase your tax savings.
Your accountant’s likely questions
⇒ Do you make retirement contributions?
⇒ How much do you contribute each year?
⇒ What kind of plan do you have?
Niche Strategies
Example
Your industry and assets determine your potential niche strategies. For example, in real estate, Sec. 1031exchanges and cost segregation will reduce capital gains while increasing depreciation.
Restaurants can utilize FICA tip credits. Tech companies can use research and development credits.
Your accountant’s likely questions
⇒ Do you own real estate?
⇒ How long have you owned the real estate?
⇒ How are your properties performing?
⇒ What did you pay for the properties?
⇒ How much property debt remains?
⇒ What are your property goals?
⇒ What is the current value of the properties?
Advanced Strategies
Example
Augusta Rule: This widely employed strategy provides virtually any business owner with a tax loophole. By hosting business events at your home, you can exclude any rental income earned from your personal tax return. At the same time, you can take a rental deduction on your business’ tax returns.
Captive Insurance: Strategy relevant for enterprises with earnings over $500,000. Qualifying enterprises will benefit from significant tax savings.
Your accountant’s likely questions
⇒ Please describe your home.
⇒ Can you host business events at home?
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Over time your accountant will become better acquainted with you and your enterprise, and your tax savings will increase. Even when some of the potential strategies the accountant had suggested do not pan out in the end, different approaches will surface to achieve the same. You can maximize tax savings if suitable tax planning software is available.
Readers should note that this article is only intended to convey general information on these issues and that FAS CPA & Consultants (FAS) in no way intends for the contents of this article to be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services. This article cannot serve as a substitute for such professional services or advice. Any decision or action that may affect the reader’s business should not rely solely on the contents of this article but should rather be consulted on with a qualified professional adviser. FAS shall not be responsible for any loss sustained by any person who relies on this presentation. This article is subject to change at any time and for any reason.
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