When you first realize that your biggest personal and business expense—bar none—is taxes, it can come as quite a shock. Seeing so much of your hard-earned money wind up in the government’s hands can feel like a shakedown. That said, focusing a relatively small amount of time and effort into strategically reducing your taxes can pay major dividends.
Some people resist implementing creative tax strategies because they’re worried it’s going to get them in trouble with the IRS. However, as long as you do things correctly, there’s absolutely nothing illegal or risky about strategizing to pay the least amount of taxes possible.
On the other hand, it is illegal to evade taxes. As the late Martin Ginsburg, Georgetown Law professor and husband of the recently deceased Supreme Court Justice Ruth Bader Ginsburg, used to say, “Pigs get fat; hogs get slaughtered.” In other words, you want to be smart when it comes to saving on your taxes, but not greedy.
As the end of 2020 approaches, we’re entering into the most critical time of the year for tax strategy, and this two-part series outlines how you can get fat, without getting slaughtered.
Prepare your foundation
To save big on your 2020 taxes, your first step should be either building or rekindling your relationship with your team of financial professionals. These are the individuals who will support you in establishing the foundation for developing and implementing your tax-saving strategies. At the very least, this team should include us, as your Family Business Lawyer™, a bookkeeper/financial manager, and a tax advisor (either a Certified Public Accountant or an Enrolled Agent).
If your bookkeeper’s job is more about data entry than financial management, you should look for someone new—or quickly get your current staff trained and up to speed. An effective bookkeeper will be managing your books on a week-to-week basis (if not daily, depending on your business). Note I said “week-to-week,” not just month-to-month or quarter-to-quarter.
Your bookkeeper’s primary responsibilities could include daily/weekly cash-flow management, monthly review of reports and categorization of expenses, and quarterly updates of your forecast and projections. For an in-depth discussion of the qualifications to look for in a qualified bookkeeper, read our previous post, What You Should Expect From An Effective Bookkeeper.
Outside of your bookkeeper, your tax advisor is the person who actually files your taxes. Ideally, you should meet with your tax advisor at least twice a year: once in May/June (after tax season) and once approaching year’s end in October/November, which is right now.
The May/June meeting is a general catch-up, mid-year review that lets your tax advisor know what you’re financially on track to do for the year. Based on that information, your advisor can consider the most effective tax strategy.
When you meet again in October/November, that’s when you’ll really get down to business. This is when you’ll project cash flow through the end of the year and get a tax estimate using different assumptions, both with and without tax-saving strategies included.
If your tax advisor cannot provide this level of service and is merely a tax filer, it’s time to get a new advisor. We can help you with that, so contact us today if you need to find a creative tax advisor who’s capable of handling such things.
Additionally, we meet regularly with many of our clients and their team of financial professionals to ensure their financial strategies are supported with solid legal implementation. To find out if we might be able to support you in this way, contact us today.
Putting your strategies into play
In our next post, we’ll discuss how to develop and implement creative tax strategies that will enable you to keep more of your money in your hands, rather than the government’s. Until then, contact us if you have any questions about what you can do to reduce your upcoming tax bill.
Next week, we’ll continue with part two in this series, discussing ways to save big money on your 2020 taxes.
We offer a complete spectrum of legal services for business owners and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer you a LIFT Your Life And Business Planning Session, which includes a review of all the legal, insurance, financial, and tax systems you need for your business. Schedule online today.