Tax Planning

This is the time of year our firm begins doing some tax planning. It seems that every year the tax code changes and requires our clients be vigilant in managing their tax liabilities. The upcoming tax law changes proposed creates an even greater need to stay ahead of the IRS and their need to take more of what you earn. This particular administration (Chairman Biden) is determined to bankrupt our country and blame everyone else for his problems. He has proposed a huge "infrastructure" bill that has more to do with funding pork projects than infrastructure. How does he want to pay for that bill? By taxing the crap out of small businesses and medium sized corporations. The larger corporations don't pay the taxes that the small and medium size corps do. They use their size to shift profits overseas so that their US holdings don't owe any tax. So, a bill designed to "tax the rich" actually hurts those it is intended to help. How does tax planning help? We try to find all the deductions, credits and strategies that will minimize the amount of your earnings going to Washington to feed the pork. There are many strategies that are designed to chip away at the tax due and some that defer the tax until there is a better tax rate to take the earnings. Tax planning starts with four basic functions and then drills down to more detailed strategies. 

First, we look at your tax structure. How is your small business set up? There are many people who believe that you should always be set up as an S-Corporation. For those that don't know, an S-Corp is a flow through entity that isn't taxed. The income flows through to the shareholders and is taxed at their individual tax rates. An S-Corp might be the right entity for some, but not everyone. We try to analyze your income over the last several years and determine what entity structure might be best for you. There are many components to that analysis such as retirement accounts, employees and payroll, and other non-tax considerations. Creating an S-Corp has its disadvantages (which is why the IRS allows for its existence). Other potential entities are partnerships, C-Corporations and sole proprietorships. Each has its own pros and cons and should be considered before making a decision.  

Second, we look at your retirement plan or lack of retirement plan. So you think you will work until you are dead? Maybe you will. Most of us get tired and decide that family time has become more valuable than your pursuit of your financial empire! We know that social security won't be enough to support you and your spouse during retirement (and maybe your 30 something kids who have moved back home), we need to be diligent about preparing for that time. What is great about creating retirement plans and maximizing your contributions is that you basically get a deduction for paying yourself. If you have employees, retirement plans help to keep them longer and help to recruit better candidates. Which retirement plan depends on your circumstances and budget. There are many to choose from and there are also some non-qualified deferred compensation plans that will help you defer even more money from your earnings. Even if you have a retirement plan, you should review it every two to three years to see if you have outgrown it or should pull back and create a more simple plan. Tax planning is where this type of analysis is done.  

Next, we look at transaction planning. If you are going to buy or sell a business, purchase commercial real estate, buy equipment or partner with another business or investor, please call us for a tax plan around that transaction. One of our long term clients came to us a few years back and told us he had decided to sell his business. After an analysis of the revenues and tax basis of the business we created a tax strategy for him that saved him $35,000. If he had just done the transaction on his own, the IRS would have taken that money from him. They didn't earn it and they wouldn't have spent it better! They don't deserve your money! You do and we are here to help you keep it. Yes, our services cost you something, but the return on investment is worth the trade off. You owe it to yourself to find out if there is something you can do to avoid giving the government more than what is due. 

Lastly, we dive into the what many people call "loopholes". They aren't really loopholes. They are just strategies derived from analyzing the tax code. Most of these strategies create small tax savings individually but when put together can be significant. Most small business owners don't take the time to analyze the code. Why would you? You should be about making money and providing for your family and your employees families. Let us do the analysis for you so that you can keep more of what you earn. Our fees are based on the projected tax savings over five years. As we continue to work with you with quarterly projections and annual check ups you will see these savings in your pocketbook. We recommend updating your plan every three years. Things change, including tax laws, so you should update your plan regularly. Stay vigilant! Don't give the government any more of your money than you have to! 

I hope this helps! Please write a review, tell us what you think! I also have a podcast on Spotify called "Coaching for Profit". Visit our website at www.bkm-cpa.com or give us a call at 844-316-6528. BKM pc Certified Public Accountants, Your Virtual CPA Firm!