The More Taxes You Pay, The More You Lose Your Investment Goals
In times like these, it’s better if I address you in all honesty. I see a huge gap that needs to be filled – we aren’t doing our taxes right. We are lacking tax planning, and it’s a threat to the success of our businesses. We are either paying more taxes due to the lack of tax planning. Or, we are paying more fines to the IRS due to non-payment and late filing. How will it help you to sweat throughout the day, daily, only to have all profits paid to the IRS? Worse, you could have your house or valuable car and so much more confiscated because of non-payment of taxes. It’s been happening like this, and it comes to a point where I feel we have to face this head-on. You will see why I am fussing about this as you read further.
Tax planning is vital; it helps you with many things. For example, you must know which taxes your business has to pay the IRS. You must also know how much in taxes you owe, as well as when you need to file. Without all these things, you are left with no option than to rush your filing. You can lose a couple of thousands of dollars from doing it like that. Consider the example below.
If your non-tax-planning results in you missing $50,000 worth of deductions, that is easily $10,500 given away to the IRS. Of course, assuming a 21% income tax rate under the Trump administration. If you are to work with the Biden tax plan, it has a 28% income tax rate. Therefore, that is $14,000 just given to the IRS when it shouldn’t have. And guess what, all the extra money you pay the IRS is income lost by your business. The more you lose money in your business, the less you can grow the same business. There is no business growth without extra money coming in, or with more money being allowed to ‘leave.’
Besides missing out on deductions, there is also the cost of late tax filing. According to the IRS, you pay 5% of the unpaid taxes for each month or part of a month that a tax return is late. That penalty starts accruing the day after the tax filing due date. More so, it costs more to file your return more than 60 days after the due date. For this, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax. Again, these are huge amounts that can derail the growth of your business and generational wealth building. Imagine having to be fined $100,000, assuming that you owe that amount in unfiled taxes?
Tax planning is what you need
Tax planning is what leads to you paying fewer taxes than a non-tax-planning business owner. Below, I give examples of how tax planning results in real dollar savings. This is not just some rhetoric, but we are talking about real savings using tax planning.
The bottom line is that there is money to be saved by you. Plan ahead, take the rightly available deductions and prepare your tax returns properly.
Consider a small business that meets up clients over a meal for the rest of the year. Let’s be precise, and say they meet clients 3 times a week. If, per meal, they use $20/person, that is $40 per sitting, assuming only the boss meets one client. Multiplying that by 3, you get $120 used on meals every week. We are talking about a full year here, so, multiplying the $120 by 52 (weeks in a year), we have $6,240 that can be deducted only from meals.
Many small businesses work from home. Therefore, we could factor in a good monthly amount for using the house for business. If that amount is around $1,000 per month, that is another $12,000 to be deducted from taxes. You see that just from 2 deductible items, this small business now has a total of $7,240 to deduct. These are just part of the grand total, which consists of even more. Think about insurance, car expenses, office equipment, as well as wages (and more from hiring your children). Think also of parking for business related trips, postage, and so many other deductions! They result in significant amounts to be deducted, sometimes running into hundreds of thousands of dollars. If it is a $100,000, your tax saved will be $21,000 under the trump tax rate and $28,000 under the Biden tax rate.
But all the above is gained only when you plan your taxes well. Without that, you will be losing these tens, if not hundreds of thousands of dollars to the IRS. There is no single day that the IRS will come to you and say, “Oh, you made a mistake; here’s your money back.” They will just take it and leave you to lose more in the next tax season. The cycle will repeat until you hire a professional tax planner.
However, here is what is important for you to know right now. When looking at the above, you will find that you purchase most of the listed items from time to time. As such, there is that little paper we call a receipt – it is of a huge significance in taxes. Why? It is used to update all your bookkeeping for the business. Bookkeeping, as we always say, is a very important part of your accounting process. And, it is out of this accounting process that you can identify (and deduct) all deductible expenses for tax purposes. Therefore, without the receipts (those little slips you get from the supermarket), there will be no deductions to think of. You simply can’t properly plan your taxes without this information.
So what must you do to make tax planning right?
- Get on to the IRS website right now and familiarize yourself with all deduction items you are eligible for. This might motivate you to plan your taxes after seeing how much you have been giving up.
- Hire a tax planner today, don’t wait until it’s too late.
- If you weren’t keeping invoices of every purchase you make, start doing it today!
- To plan your taxes well, never get things mixed up. There is your bookkeeper, your accountant, your tax planner, and your tax preparer. You must know the difference between all these professionals, and hire them separately.
- If your tax planner isn’t working with you for the better part of the year, something must be wrong. Planning taxes isn’t a four-week process; there’s more that gets into the final deduction you would expect.
I want to leave a piece of advice for you all, and it’s something you must pay attention to. In my tax planning, I never worry about the final amount I get in deductions. But I worry whether every amount that I was supposed to get as a deduction is captured in my tax filing process. If I do this process well, I know I don’t have to stress about how much I will save. I suggest you put yourself in a position to earn such peace of mind. I know you want this, so why not get on our mailing list, or contact us for more information? We want to help with your tax planning – this is one of the things we are so good at, and a simple call me back from you will get things going! Hit us up!