Most business owners have a similar story…They started out scraping and saving just to pay taxes, working with their accountant every year to get the tax they owed Uncle Sam down to the bare minimum. As time moved on, they restructured to an ‘entity’, bought equipment, changed their accounting a time or two, and maybe put some back into retirement accounts. The more success that came, the more of this they did to try to avoid sending Uncle Sam too much.
Our engagement with this business owner usually comes into play after most of this has occurred. We get to look back at the road that they traveled and why it was traveled that way. More often than not, we find a multitude of “could haves” and “should haves” to save taxes when we become involved with the business owner. This is through no fault of the accountant or the business owner. It is simply the nature of the beast.
We have also uncovered potentially devastating tax bombs from tax planning strategies that were not implemented appropriately.
A sole professional to advise you on all aspects of your taxes just does not exist. Likewise, people don’t know what they don’t know. So how does anyone know who or how to ask?
No professional in their right mind would intentionally allow this to occur, yet it does. Even Albert Einstein is quoted as saying, “The hardest thing in the world to understand is the income tax.” When Einstein died in 1955, the tax code was at 409,000 words – in 2015, it was over a million words, no readily estimate is available beyond that. Bear in mind that this doesn’t include the thousands of pages of attendant tax statutes and IRS regulations. Which means that this one sentence may have been the wisest thing Einstein ever said.
There is no possible way that you can rely on one tax professional if you have success issues. You need a team. And not just for the reasons already stated. Remember that the IRS has recently implemented a major hiring campaign. This means you need to have your t’s crossed and your i’s dotted. I would guess that most tax payers don’t even know how to cross t’s or dot i’s, or where to find them. Every year we receive a plethora of changes from the IRS. Who is keeping up with how to document what, what is deductible and what is not, and what your accountant needs to know and what they don’t?
Think it is no big deal?
Did you send 1099s to every person you paid over $600 to last year for any services they provided? What about companies that provided you services? Do you know the five things that need to be on every receipt for your records? If you don’t, most likely your bookkeeper doesn’t either. Otherwise, they would be asking you questions… and often. Do you know what meals and entertainment you can deduct and how you should document it? Are your vehicles properly documented? Yes, this can easily become overwhelming.
You need a team. You need:
- (Bookkeeper/Accountant) A bean counter that likes to keep up with change and is willing to coach you each year on what needs to be done differently. And strongly encourage you to do so, often.
- (Tax Preparer) A historian that will record history in the best possible light to help keep your taxes low, work with your bean counter to make sure the details are done, and is open to the team approach.
- (Tax Planner) A geographer to help you chart your current map and a map of the future, one that knows about enough to see your picture holistically, and present ideas on what could or should be done to minimize a lifetime of taxes.
- (Tax Specialist) A surgeon (at times) may be necessary for implementation. If you are going to have surgery, get it done right. Don’t worry about not knowing when you need one though. If you are working with an entire team, they should be able to help you learn when one is needed.
Tax time and those payments to Uncle Sam are front and center and rapidly approaching. I want to encourage you to use this payment as motivation to do one thing in 2023 about your taxes—don’t continue the grind. Stop. And let us help you map out your course for a potential Lifetime of Tax Savings.