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Experts Agree: Proactive Tax Planning is Key to Building Better Financial Outcomes

by
Lee Reams II
on
1/5/2020
Experts Agree: Proactive Tax Planning is Key to Building Better Financial Outcomes

Note: The tax filing and payment deadline for 2019 tax returns has been delayed from April 15, 2020 to July 15, 2020.

There's a common misconception out there that tax planning is something you essentially only do once a year — usually in the lead up to the tax deadline. Depending on the nature of your organization, you may do it four times a year — or roughly whenever you have to send in those quarterly tax payments to the IRS. Once those checks have been written and the envelopes have been sealed, stamped and sent away, you can go back to focusing on your business and stop thinking about taxes so much during this welcome reprieve.

That may be a lovely idea in theory... but it absolutely does not (or at least, should not) work that way in practice.

Savvy business owners — and the financial professionals that help them — understand that taxes are about more than just preparation. Real, forward-thinking planning is also a necessity — and not just a few times a year. Taxes are never something that you "do once and forget about," as you could potentially be leaving a significant amount of money on the table with that mentality.

Case in point: We recently sat down with a number of financial experts and asked them a simple question: "Can you give us some examples of how proactive tax planning saved your clients money or brought about a better financial outcome that wouldn't have otherwise happened?" Their responses were equal parts varied and fascinating, but all of them illustrate just how important it is to always be looking forward when it comes to your taxes.

Tax Planning, or: "It Pays to Be Proactive"

"One of our proactive tax planning strategies literally saved a client $25,000 a year in taxes — and will continue to save them that amount for the foreseeable future," said Joshua Standley, EA, ABA of DKK Accounting. However, those incredible savings came with a fairly significant caveat: "We were only able to help them after we had up-to-date books to be able to really understand where they were at and what was going on," he continued.

"Being able to understand and analyze their financial situation allowed us to make adjustments to be able to take advantage of certain tax elections and an entity change that will help them keep more money in their pockets," said Standley.

Dmytro Arshynov, EA, CAA of DMA Financial Management, LLC had a similar experience: "During the annual client review, I discovered that one of the companies of my client that served as headquarters for the rest was making way more than the other companies owned by the same client. This company was also paying a lot more in state taxes, while the client, who managed all the companies, was residing in a state without income taxes."

You can probably already tell where this is going.

"Our planning strategy was to create a management company that would charge all the companies for their services, which were substantial," he continued. "This, coupled with expansion in the tax-free state, helped us save a substantial amount of money in state income taxes."

Arthur Rubin, EA, MBA, CFE of Accountants and Counselors also managed to save money for a client by way of proactive tax planning. He said, "We represented a client who received a call from his accountant — they were filing his corporate returns and he needed to pay the IRS $360K with the return and $160 to the state."

He continued, saying that "we went through the returns which were complex corporate and partnership returns and, of course, found errors in understating the client's basis and allowable losses against the taxable income. That's why the liability was so large. We took the next step to immediately plan for the next year and implement a system for how to handle investments in real estate to offset income upon the disposition of the property."

But maybe the advice that sums all of this up the best came from Gene Austin of Tax Strategies Group. He said, "For individuals that are either self-employed or that have multiple jobs, we like to perform a detailed review of tax withholdings and estimated tax payments one or more times during the tax year to take the guesswork out of how much your refund will be. Not only does this allow us to make better decisions throughout the year, but it also provides the peace of mind that only comes with knowing you won't have a balance due and be forced to pay associated under-withholding penalties and interest charges."

Indeed, that critical peace of mind is something you can only get with proactive tax planning, regardless of what your situation happens to be. Make no mistake: You can't get to that point if you only think about taxes once or twice a year.

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Lee Reams II

Lee Reams II

CEO

I am a tax and business news junkie who has spent the last 20 years developing and executing "best in class" word-of-mouth marketing campaigns for tax and accounting professionals. With TaxBuzz and CountingWorks we have taken that same commitment to quality content directly to the consumer. Keeping you up-to-date with the latest tax law changes, business growth tips and planning strategies to help you reach your best financial outcome.

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