Tax Strategy or Tax Compliance: Which do you focus on?

Tax strategies have one main objective: to increase your wealth.

The sad thing is, more people end up focusing on tax compliance than they do over tax strategy. 

Partly because, many don’t know the difference between the two and they don’t like to look at their numbers. But also because it costs more money to hire a tax strategist than it does to hire a tax preparer. 

So many entrepreneurs are afraid to look at their numbers because they are afraid they are in the red, and not the black.

So many entrepreneurs are afraid to look at their numbers because they are afraid they are in the red, and not the black.

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Yes it most likely is true that you are in the red if you never look at your numbers. But you could easily change that to black, just by looking at them and creating an actual strategy around your business numbers. 

Many business owners will plan for their sales and how they are going to meet their sales goals. But they don't plan the spending in their business to minimize their tax due.

What is tax compliance?

Tax compliance is just making sure you pay your taxes and file your returns by the deadlines. It makes sure that your tax liabilities are paid. And it makes sure that you follow the federal, state and local tax laws and requirements. 

You follow the rules, but you are always looking back at what has happened in your business. 

You aren’t planning for anything to come in your business.

You hire a tax preparer, accountant, or CPA to file your tax return for you. Yes they will look through your records to see if they can get you any additional tax breaks, but once the year is over, there aren't really any additional tax breaks that you can get for your business. 

What is a tax strategy? 

Tax strategy is planning ahead in your business, whether you plan a budget, a profit plan, a cash flow plan, or even all of the above. 

You have a plan for how you are going to bring money into your business and how you are going to spend your money. 

You are always saving money ahead of time for tax purposes, instead of waiting until it’s time to file your tax return and finding out how much you owe for taxes. 

Your tax strategy is also known as tax planning. You are always looking for ways to save money on your taxes due. 

A proper tax strategy requires in depth knowledge of your business, your business type, and the tax laws and regulations that affect your business. 

Why does a tax strategy matter? 

Many of the entrepreneurs that I work with always complain about time. 

They don’t have enough time to focus on the numbers in their business and actually creating a financial plan for their business. 

They don’t have enough time to learn all the tax information they need to know to make sure their business is doing everything they need to do properly. 

Well, this time that you don’t have enough of, is actually costing you a lot more money than you think when you don’t put a tax strategy or plan in place. 

Just being “good enough” and paying your taxes on time, isn’t enough for you or your business. 

You are most likely paying more in taxes that you don’t need to pay by not having a strategy in place. 

Not only does having a tax strategy in place help you plan ahead, it also saves you money in your business. 

As a business owner, you are responsible for a lot more taxes than you realize. As an employee, those taxes automatically come out of your paycheck, so you don’t always have to pay out of your own pocket directly for them. As a business owner, you have to pay directly out of your own pocket. 

The more money you have left over after taxes, the better off you, and your business, will be. 

The more money you have left over after taxes, the better off you, and your business, will be. 

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Tax Planning Helps You Have More Money Available

When you create a tax plan for your business, you actually plan out how much money will be left AFTER taxes are paid. 

This means you have already considered all of the deductions that you plan to take in your business and how much money you will owe in taxes before you’ve even made a dime in your business. 

Pssssttt...this also helps you create your plan for bringing cash into your business as well!

As a business owner, you get to deduct your expenses, or tax deductions, from your revenue before you figure out how much money is owed for taxes. 

This is why planning is so important ahead of time. You need to know what it costs to run your business, how much you’ll pay yourself and how much is due for taxes. That way you can always continue to make more money than you need to keep running your business. 

The government loves businesses and gives many tax breaks to businesses.

These tax breaks give businesses more money to invest and continue to grow. And the more a business grows, the more money the government will eventually get from the business. 

So they want to give you the tax breaks in the form that of the tax deductions that you do get. 

What opportunities exist for tax planning?

When you work with a tax strategist, that person completely understands your business, your family situation, the rules and regulations that affect you and your taxes and the specific tax opportunities that help you reduce your tax owed. 

Tax planning opportunities may include: 

  • Health insurance and savings
  • Retirement account and investment savings
  • Education savings
  • Depreciation optimization
  • Business incentives and credits
  • Income planning
  • Tax and organizational structuring
  • Investment incentives
  • Green energy incentives
  • Hiring incentives

This planning is critical to your business and how you actually continue to grow and evolve your business over time. 

Hiring a Tax Planner or Strategist

It usually does cost a lot more money to hire a tax strategist in your business. But that person also usually saves you a lot more money than they cost by reducing your future tax bills. 

It may cost less money to hire a tax preparer at the end of the year, but once the year is over, your opportunities to save on your tax bill are significantly reduced. 

Your tax planner should also work with you all year long, not just a one and done type of deal. 

Want to get started on a tax planning opportunity for your business? Book a call with me and let's see if we are a good fit to work together. 

Do you have a tax strategy in place for your business? 

So do you have a tax strategy place in your business? Or do you need help getting one set up? Let’s talk!

The bottom line is that you should be planning for your taxes all year long, not just being tax compliant. Find the right professional to work with you and help you create a real tax plan in your business today. 

All information on this site is provided for general education purposes only and may not reflect recent changes in federal or state laws. It is not intended to be relied upon as legal, accounting, or tax advice. We strongly encourage you to always consult with a tax or accounting professional about your specific situation before taking any action. Please read our full disclaimer regarding this topic.

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