A Real Threat to Your Investment Goals is Paying More Taxes
While running your business, it is wise not to spend more money than you make. And, as your accountability accountant, I also would like to remind you about the role that awesome tax planning plays in your business. Tax planning is analyzing your financials to ensure tax efficiency (paying less taxes). This is done by a professional tax planner on your behalf. While tax planning, you aim to reduce the amount of tax you pay and increase your contribution to either investment money or savings and retirement plans. After this article, you will understand why it is important to plan your taxes. You will also know why paying more taxes isn’t good for your business.
With that being said, why must you make $100,000 in your business if you can’t use the money? Why must almost everything you make go towards different forms of taxes? It simply isn’t a path that you must take, especially given several tax planners that are accessible to you in any part of the country. You can use these and save more money towards building your business, and eventually, generational wealth.
When I mentioned that you could be making $100,000 that you won’t spend, many of you raised eyebrows. But here’s the deal, you might actually be paying more taxes than you should. Taxes need to be controlled because they do eat up a significant portion of your profits. Consider the below.
Since hiring your children is one of the tax strategies you can use, here is a relatable example. For a hiring parent that makes taxable income of $50,000, they pay a total of $7,181.60 to the IRS. But a parent that makes the same amount without hiring their child pays $9,550 in taxes. Comparing the two, the parent that hires their child saves $2,368.4. In five years, the hiring parent saves $11,842, and if they have three children they hired, they save a total of $35,526 within the five years. This is money that got created because of tax planning, and we are talking about one tax strategy, what if your tax planner has more tax strategies you can use?
You need tax planning, especially in this environment, where elections bring in new leadership in the country. Each president comes in with their tax plan and it has the potential to hurt your business income. Currently, President Trump’s tax plan is favorable to corporates. The Tax Cuts and Jobs Act (TCJA) of 2017, for example, created a single corporate tax rate of 21%. This rate, by Donald Trump, was 14% lower than what he found when he came into the office. This kind of policy leads to an increase in what your business retains as income because you will now be paying less taxes. More so, Trump introduced more tax credits that resulted in the same effect on households. Therefore, for both corporates and households, they have more money to invest into their businesses and save under President Trump.
But looking at his rival in the upcoming elections, Joe Biden, he tells a different story altogether. According to the Tax Foundation, on a conventional basis, the Biden tax plan by 2030 would lead to about 6.5% less after-tax income for the top 1 percent of taxpayers and about a 1.7 percent decline in after-tax income for all taxpayers on average.
He is already promising to increase corporate and individual taxes. For example, he wants to take the corporate tax rate from the current 21% to 28%. That 7% increase equals income that will be lost by businesses. For households, he wants to impose a 12.4% Social Security payroll tax for wages above $400,000. This lost income is going to derail your plans to build generational wealth because it will take a significant amount of money from your earnings.
Looking at the above, it is just a few examples of changes that could come in. You can then imagine how it will be on you if you don’t have a tax planner? There will be more losses on your side. Even now, when the Trump administration is still in charge with its tax benefits, some small businesses are still missing on the tax benefits and credits available because they don’t know how to deduct them for themselves. If they had a tax planner, they wouldn’t be in such a losing position.
The above is what can happen in the absence of a good tax plan. But this can be changed when you hire an excellent tax planner in your business. I know, many people think that it costs to hire a tax planner, but the money you lose because of the failure to have a tax plan, or for having one that is shambolic is nothing compared to what you will pay a tax professional. It’s time to wise-up, make the right decisions and enjoy your way to building generational wealth.
After learning about all the above, why then must you tax plan?
- It reduces the time it takes for you to become a millionaire, or reach any financial milestone as it helps with profit maximization
- It helps you build generational wealth – something that your children would be so grateful for
- Reduces the amount you owe to the IRS by identifying maximum deductions and write-offs
- It allows you to control the time that you make a payment to the IRS, which is different from business owners that wait for last minute filing
Nevertheless, the important thing to remember is how much you must plan your taxes. In order to do so, you need an awesome tax planner by your side. They will look into your possible deductions, loopholes, and exclusions, as well as estimating your tax liabilities well ahead of payment deadlines. This puts you in control of when you pay taxes, and also sees you paying less than your peers that don’t plan their taxes.