How Proactive Tax Planning Will Ensure You Have A Smooth Tax Season Every Year
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Being proactive and starting your preparations early can make all the difference in maximizing deductions, minimizing stress, and staying ahead of the game.
In this blog, we cover:
The impact of proactivity with your tax planning
Why accuracy matters
What reports you need to have ready for your tax preparer
Why outsourcing is essential for multiple six and seven-figure CEOs
This blog will equip you with the knowledge and strategies you need to tackle tax season with confidence and efficiency and put a stop to the vicious cycle of scrambling to get your ducks in a row and file your taxes before the deadline! CHEERS TO THAT!
Be Proactive and Starting Preparing for Tax Season Early
We know that even the thought of tax season can put a big damper on all the new year motivation you are building but it doesn’t have to be this way! Being proactive is a massive element of having a smooth tax season and we recommend getting your stuff together BEFORE the beginning of the year for the upcoming tax season. We are already past the new year and tax season is going to be here before you know it, so If you are starting to prepare for tax season now, this is still a good opportunity for you to be proactive and gather all of your financial reports, receipts, and necessary documentation now rather than later.
You might be thinking that you have nothing to worry about, and that you have plenty of time until the tax filing deadline so there’s no need to stress about getting everything in order now, right? What we want you to understand is that if you don’t do this now and you end up scrambling to get your tax documents ready at the last minute to meet the tax filing deadline, you will likely miss out on a lot of opportunities to lower your tax liability with missed tax deductions and credits and you could even be overstating your income., which could cost you thousands of dollars.
It’s not as easy as just getting the bookkeeping done. When you are a multiple six and seven-figure CEO, your bookkeeping becomes a lot more complicated and your finances are way more complex so it is even more important for you to have your ducks in a row if you are hitting that multiple six and seven-figure mark.
So what does having your ducks in a row mean? It means having all of the right reports, having the right information, and leaning on professionals like your bookkeeper, financial advisor, and tax strategist, because they will be able to ensure that you have the right reporting to hand off to your tax preparer when it’s to file your taxes.
What Financial Reports Do You Need To Have Ready?
These are the bare minimum reports that your bookkeeper should be giving you to hand over to your tax preparer:
Year to Date Cash Basis Financials or Year to Date Accrual report
Year to Date Trial Balance Cash Basis or Accrual Basis
Year to Date Balance Sheet Cash/Accrual
Fixed Asset Report
Estimate Tax Payments made to both state and IRS (with receipts for each of these)
Filed 1099s report
Filed W2 reports
Owner's Salary & Benefits (if you are an S or C-Corp only)
Make a checklist and get these reports ready if they aren’t yet!
Depending on your business and specific trends in your financials, you may need more reporting, which is something that we can support you with. It's not always as simple as just providing access for your tax preparer to your books because the reporting may be more intricate, and this is where having the support of an expert comes into play.
Accuracy is Key With Your Financial Reporting
It’s not just about having the bookkeeping done and the reports ready, it really comes down to ensuring that the information is accurate. If you are not being proactive and you are just scrambling around it could cost you thousands of dollars. Here’s why:
You are going to be in a rush
You are going to get frustrated
You are not in your zone of genius and would rather be doing something else
We see entrepreneurs lose so much money from scrambling around and having the “F’ it” mindset thinking that it’s just a couple thousand dollars when in reality that can make a massive difference in your business and that could be money you are putting right back in your pocket!
Accuracy on your financial reports ensures you are reporting the right numbers and. not over or understating your income to the IRS which could literally save you thousands of dollars in tax payments!
Not Being Proactive In The Case Of An Audit From The IRS Can Get Really Messy
A hard truth that you need to understand is that the tax preparer and the CPA don't really care. I know that sounds really crazy, but they are way too busy during tax season to be sitting there categorizing your transactions so if you were to go to a taxpayer or CPA during their tax season and say “I haven't been doing my books, here's a box of receipts and here's my books can you help me?” They just do not have time for that!
What they are going to do is tell you to give them a high-level overview of what you spent in the business on a spreadsheet and make it super simple. You might be thinking that this sounds great and makes life easy, but it could come back to haunt you later on.
In the case of an audit, you would have to pay back interest on top of all of the income you understated to the IRS, which will add up to be a hefty payment that could have been avoided by being proactive.
Multiple 6 & 7 Figure CEOs Should Be Outsourcing This Completely
If you are in the multiple six and seven-figure mark in your business you need to have these people in your corner to handle your tax preparation for you, because the truth is you should not be doing it yourself at this point.
Tax Preparer
CPA/EA
Bookkeeper
Fractional CFO or Financial Consultant
You Need Another Set Of Eyes
If you are at this level in your business and happen to be doing your own books or have someone on your team like a VA doing the books, it can be incredibly valuable to get a second pair of eyes on things and this is why we perform Diagnostic Reviews that are completely free, so we can be that additional set of eyes for your business.
It takes us 24 to 48 hours to review your accounting files, then we will give you some tips and quote you on what it would cost to clean it all up and get you on a plan to get everything ready to go!
For all of our Bookkeeping clean-ups, we do offer payment plans so it can be cost-effective for you if you are behind and want to get ready for tax season efficiently and effectively. Just know that if you are trying to get this all done in the middle of tax season when every bookkeeper and tax preparer are super busy, it is not going to be inexpensive!
Creating A System Will Help you Stay Prepared In The Future
If you find yourself scrambling at the last minute year after year, you need to implement a better system so you are not going to repeat the same cycle of being behind, requesting an extension, or not filing your taxes, again.
When you work with us, we can build out a customized system that works for you or handle it ourselves so you can easily be proactive with your tax prep all year long.
Communicating With Your Tax Preparer Is Essential.
Most business owners coming into tax season aren’t in their zone of genius, so when it comes to communicating with their tax preparer they just don’t know what to talk about, what questions to ask, or what they need to point out with their preparer.
This is why communication is so crucial. A good bookkeeper should have all of your taxes ready to file by the end of January, and this is what we do with every one of our clients.
By the end of January, we have:
Talked to the tax preparer
Handed over all of the documents we have
Customized their reporting
Given them any questions to ask their preparer
The preparer or CPA is the one who is ultimately in determination of saying what is and isn’t deductible, so they need to know and understand your business, which means communication with them is incredibly important.
Cash Flow Projections Can Help You Be Proactive With Tax Payments
If you are making anywhere from multiple six figures to 7 figures, you are most likely going to be paying taxes, so you need to be ready for a big tax payment.
One thing you can do to be proactive in the future is to use your Cash Flow Projections to determine how much you are expected to owe in taxes. A good bookkeeper should be able to work with your tax strategist and your cash flow projections to be proactive with your tax payments.
A lot of people will go to file their taxes and be hit with a huge tax bill then end up on a payment plan, have to pay interest on their owed taxes, and always have a balance with the IRS, so this is also where being proactive can make a huge difference in leveling up your business.
When it comes down to it, it’s really about ensuring that you have the right reporting, getting help for the future, and getting a system in place so you don’t continue this vicious cycle.
We can be the liaison between your tax strategist and CPA and customize a system that works for you to stay proactive and prepare for tax season year-round, but if you’re on the hot mess express right now and need to get your ducks in a row, grab a free diagnostic review with us and let’s get you ready to file!
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