It’s the end of September. Now is the time to start thinking about your tax bill for April next year. It’s September, why should I be thinking about something that isn’t due for another six and half months. The answer is simple. Now is the time that you have opportunity to affect your tax bill in April. Once December 31st has come and gone you have closed the year and there are very few things you can do to lower your tax bill in April.
Estimating a tax bill is something that a good CPA should be able to do for you. There is a bit of estimating involved in this process but at a high level this is what needs to be done to estimate your tax bill.
- Estimate your income for the year.
- Estimate your deductions for the year.
- Estimate your taxable income (income – deductions for the year.
- Once you have your estimated taxable income it is easy to estimate your tax.
- Compare your estimated tax with your tax payments.
This process is a cooperative process. You need to give your CPA information so that he/she can accurately do the calculations to estimate your taxes. The CPA can only be as good as the information he/she is provided.
Think about for a moment. Let’s say that you had a really good year. Your business earned a lot more this year than last year. When you earn more income you will have to pay more taxes. There are two ways to lower your tax bill:
- Earn less money
- Have more tax write-offs
When it comes to taxes unless you have spent a good amount of time studying the tax laws, you will be in a situation where you don’t know what you don’t know. This is why hiring a good tax strategist can be great investment.
Why do I say tax strategist? There is a big difference between a tax strategist and a tax preparer. A tax preparer prepares taxes. That is what their specialty is. They know how to put the right numbers in the right boxes on the right tax forms. That is what they are good at. That is where their training is and that is the focus of their business.
A tax strategist has a different focus. A tax strategist will look at you business and personal taxes from a holistic perspective. They will look for missed opportunities and missed tax deductions. A tax strategist will look for legal ways to lower your tax bill. Taxes for most people are the largest expense they incur each year. Taxes are the biggest drain on the cash flow of a business.
Think about it for a minute.
If you could legally lower your tax bill, what would you do with the extra money you have from those tax savings?