As a business owner, tax is not merely a once-a-year task—it’s ongoing planning that can significantly impact your bottom line. You and your CPA are a team. Lean on your CPA to navigate the complexities of the tax code to maximize your savings and ensure compliance. Here are ten crucial questions to ask your CPA and help you achieve ultimate tax savings.
1. Are We Engaging in Proactive Tax Planning?
What It Is:
Proactive tax planning involves anticipating and organizing your financial affairs in a way that minimizes your tax liabilities. This strategy goes beyond merely filing your taxes accurately—it’s about looking ahead and planning for future tax scenarios.
What Your CPA Should Do:
If you choose to engage your CPA in tax planning, your CPA should conduct regular reviews of your financial statements and business operations throughout the year, not just at tax time. This includes analyzing changes in tax laws, assessing how these changes impact your business, and advising on strategic decisions to minimize your tax burden.
Why It Matters:
By being proactive, you can take advantage of tax-saving opportunities and avoid costly surprises. Proactive planning can lead to significant savings by identifying deductions, credits, and other tax benefits well in advance.
2. How Can We Maximize Our Deductions and Credits?
What It Is:
Deductions and credits are essential for reducing your taxable income and overall tax liability. Deductions lower your taxable income, while credits reduce the amount of tax you owe.
What Your CPA Should Do:
Your CPA should be well-versed in available deductions and credits applicable to your business. This includes industry-specific deductions, as well as general business expenses. They should also stay updated on new and expiring tax provisions to ensure you’re taking full advantage of what’s available.
Why It Matters:
Maximizing deductions and credits can result in substantial tax savings. For example, claiming deductions for business expenses like office supplies, travel, and employee benefits can significantly lower your taxable income.
Key Deductions to Explore:
- Home Office Deduction: For businesses run from home.
- Vehicle Expenses: Deducting business-related vehicle expenses (fuel and repairs as examples)
- Depreciation: Taking advantage of Section 179 and bonus depreciation.
- Startup Costs: Advertising; accountants, consultants, and attorneys fees; travel costs to for suppliers and customer; and many others
3. Is Our Business Structure Optimized for Tax Efficiency?
What It Is:
The structure of your business (e.g., sole proprietorship, partnership, LLC, corporation) can have a significant impact on your tax obligations.
What Your CPA Should Do:
Your CPA should evaluate your current business structure and determine if it’s the most tax-efficient. They might recommend restructuring your business to take advantage of more favorable tax treatments. For instance, electing the tax designation of S-Corporation can provide tax advantages for certain types of businesses.
Why It Matters:
The right business structure can lead to lower taxes and better liability protection. By choosing the optimal structure, you can benefit from specific tax provisions designed for different types of entities.
Real-World Example:
A sole proprietor might save on self-employment taxes by forming an S-Corp and paying themselves a reasonable salary.
4. What Year-End Tax Planning Strategies Should We Implement?
What It Is:
Yearend tax planning involves making strategic decisions at the end of the fiscal year to optimize your tax position.
What Your CPA Should Do:
Discuss with your CPA if yearend tax planning is right for you and what the process will entail for your specific business. It may include an in-depth analysis complete with a tax planning checklist. Items that may be discussed are deferring income, accelerating expenses, and making last-minute purchases that qualify for deductions. They should also advise on retirement plan contributions and other tax-deferred investments.
Why It Matters:
Effective yearend planning can make a significant difference in your tax liability. By implementing strategies before the year ends, you can ensure that you’re in the best possible position when it’s time to file your taxes.
Year-End Strategies:
- Deferring Income: Postponing receipt of income until the next tax year to reduce current year taxes.
- Accelerating Expenses: Paying expenses in the current year to claim deductions sooner.
- Retirement Contributions: Maximizing contributions to retirement accounts for tax benefits. Do you have a 401(k) setup with your business? Tentho can help you set this up!
5. How Often Should We Conduct a Comprehensive Financial Review?
What It Is:
A comprehensive financial review involves a thorough analysis of your financial statements and tax returns to identify areas for improvement.
What Your CPA Should Do:
Your CPA should offer regular reviews of your financial health, including your income statement and balance sheet. They should look for trends, anomalies, and opportunities to improve your financial standing. This review should may also include an assessment of your tax strategies and their effectiveness.
Why It Matters:
A comprehensive review helps ensure that your financial practices are aligned with your tax planning strategies. It can uncover inefficiencies, highlight areas for improvement, and ultimately lead to better financial management and tax savings.
Benefits:
- Identifying Inefficiencies: Spotting and correcting inefficiencies in your financial operations.
- Improving Cash Flow: Enhancing cash flow management for better financial health.
- Optimizing Tax Strategies: Ensuring your tax strategies are effective and up-to-date.
6. Are We Making Accurate Estimated Tax Payments?
What It Is:
Estimated tax payments are periodic advance payments on your annual tax liability. They are required for individuals and businesses that do not have taxes withheld from their income.
What Your CPA Should Do:
Your CPA should calculate your estimated tax payments to avoid underpayment penalties. This should be provided to you with your tax filing. Remember, it is unlikely your CPA will not make these estimated tax payments on your behalf as it is your responsibility to pay the IRS. However, your CPA should be able to guide you through the entire process.
Why It Matters:
Accurate estimated tax payments can prevent costly penalties and interest. It also helps manage cash flow by spreading out tax payments throughout the year.
Tips for Managing Estimated Payments:
- Quarterly Reviews: Conducting quarterly reviews to adjust payments based on income fluctuations.
- Safe Harbor Rule: Ensuring payments meet the IRS safe harbor rule to avoid penalties.
7. What Retirement Plans Offer the Best Tax Benefits for Us?
What It Is:
Retirement planning involves setting up and contributing to retirement accounts to secure your financial future and take advantage of tax benefits.
What Your CPA Should Do:
Your CPA should help you choose the right retirement plans, such as 401(k)s, IRAs, or SEP IRAs. They should advise on contribution limits and the tax benefits of each plan.
Why It Matters:
Retirement plans offer significant tax advantages, such as tax-deferred growth or tax-free withdrawals. Proper planning can reduce your current tax liability while securing your financial future.
Key Retirement Plans:
- Traditional IRA: Contributions may be tax-deductible, with taxes paid upon withdrawal.
- Roth IRA: Contributions are made with after-tax dollars, but withdrawals are tax-free.
- 401(k) Plans: Employer-sponsored plans with potential for matching contributions.
8. How do I find other professional resources?
What It Is:
Business questions arise within the realms of legal, human resources, international tax, R&D tax credits, and regulatory compliance. If your CPA does not have the professional experience themselves, they should be able to have you navigate the complex web of industry professionals.
What Your CPA Should Do:
Your CPA should be your trusted guide. If they do not have the answers to your specific situation they should be able to refer you to trusted industry partners and experts and provide their professional guidance through the process.
Why It Matters:
As a business owner it is important to not feel alone. Your CPA should be your first call as a trusted guide.
Conclusion
By focusing on these eight crucial areas, your CPA can help you achieve significant tax savings and improve your overall financial health. Make sure your CPA is proactive, knowledgeable, and engaged in your business’ financial planning. If they’re not, it might be time to find a CPA who can truly maximize your tax benefits and support your business growth.
At Tentho, we are here to support you on this journey! Schedule a chat with our team today.