Taxes

Happy Wednesday.  It is an amazingly beautiful day in Vancouver and tonight Kubae and I are guests of Key Bank and Jeff Taylor at the Portland Thorns game.  We haven’t decided if we are eating in before we go or heading over to the Max station early and grabbing something to eat in Portland before the game?  Kubae and I are from different parts of the spectrum as I enjoy cooking and eating at home while she loves trying new restaurants every chance we get!  Does anyone have a suggest for a pre-game meal?

I was asked the other day why I never talk taxes.  This is not entirely true as I have older posts where I talked about it; and in this blog I haven’t gotten around to it yet!  But to dispel the concern about taxes, I will gladly write a few words.

There are two separate issues to address when writing about taxes: Filing and Planning.  Filing tax returns is an obligation.  Now, it can be easy or painful and it is your choice!  To make tax filing easy (and less costly) I strongly suggest you follow my guidelines in the various blog articles about how to structure and organize your accounting.  If you keep it simple and put transactions in the right place, your tax preparer will be able to easily complete your return for you to file.  No muss no fuss.

On the other hand, the small business owner who does not pay attention to his accounting generally makes tax filing a massive undertaking.  You are now paying someone with an advanced degree several hundreds of dollars an hour to fix your books.  I have seen year-end accounting services run to several thousands of dollars, all because the business owner had no idea what he was doing and the accounting firm (us as much as I hate to admit it) never took the time to properly teach the client how to keep a good set of records.

Planning for taxes is not an obligation, but is essential to the health of your business.  However, there are a few rules to tax planning you should be mindful of:

  1. Planning requires your business to be profitable before taxes
  2. Planning demands time
  3. Planning needs alternatives

Keeping these simple rules in mind, here is how to work with your accounting firm on tax planning:

  • Keep your books up-to-date and properly adjusted
  • Set an appointment no later than August 31 to review your books with the accountant
  • Be clear on your objectives for planning (new purchases, retirement, etc.)
  • Think about what you and your business might need over the next 12-18 months

There is nothing more frustrating, for you or your accountant, than waiting until February to discuss the fact you made $250,000 in profit for the prior year and then went out and bought vital business equipment which cost $250,000 in January.  The problem becomes, obviously, that you owe $75,000 in taxes on the prior year profits and you spent all your liquid cash on the equipment!

Yes, this happened more than once.

By coming in early and discussing your plans and objectives, you give your accountant the alternatives for you to review and approve.  In the situation above, for instance (and in hindsight), a planning meeting in August might have showed that profit was $175,000 and the owner might have addressed the fact that a new piece of equipment was needed early the next year.

Two things would have come out of that conversation – accelerate the purchase of the equipment and use some reasonable amount of debt to finance the purchase.  Due to the way the tax law works, taxes would have been reduced and the Company could have retained working capital – two objectives met for the price of one!

Since we are now approaching optimal tax planning time, consider making an appointment with your accounting firm to discuss and plan your tax situation.  And if you are currently not working with an accounting professional or would like a second opinion, feel free to contact me and have a free no obligation consultation on your business and plans.

Have a great day.

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