Recently, a business owner asked, “Why do I need tax planning? What strategies can I implement to reduce taxes? Since you do my taxes, won’t tax planning be part of your scope?” Majority of business owners who utilized the services of CPAs to prepare and file taxes believe that using CPA services to file taxes means tax planning.
I guess in many scenarios, business owners have always understood tax planning as merely knowing a few tips to cut my tax bills. As a Certified Tax Coach, I think otherwise. To me, effective tax planning is part of growing a successful business.
To all business owners out there, why do you start your own business? Why did you create a business from nothing? Why did you put in 40, 50, 60, 80 or more hours into your business to make it successful? Because you have a dream and you have a vision! You understood the value you bring to your customers. You have created your business with a clear intention to serve your community and your people. Your business was birthed not by accident, your business was birthed because of your intention - your careful and strategic planning and execution. You have transformed your dream and vision into reality with awareness of your full intention and most importantly, your full attention to how you want to execute your business.
Tax planning, or the action that one would take to reduce tax liability, should never and will never be just simply learning a few tips without actually grasping or appreciating the concept of always wanting to strive for one’s optimal tax position. Your CPA’s creativity from tax planning starts by you (as a business owner) having a systematic way to measure and track your results – your profitability. Mystery and change that tax planning can bring start from implementing proper accounting system, then understand your tax bracket, and where you want to go and how much efforts you are willing to put in to reduce your effective tax rate! But first, there needs to be a systematic way to track your revenue, your expense and your profits because without a systematic way to track these numbers, you will not be able to understand your tax situation and without understanding your tax situation, you cannot do tax planning. Continuous investigation and discovery to improve your tax position will lead to effective tax planning. What that means is absent a proper accounting system and proper cash flow monitoring system, tax planning becomes irrelevant because you will always only just scratch the surface without truly exploring the real value tax planning can bring to you, your business and your family! Tax planning only begins by you learning to implement effective tax strategies at the same time growing your business. Mastery comes from practice. And to practice implementing effective tax strategies, you need to be attentive and you need to know how to apply these strategies. To take this even further, at the end of the day, tax planning is not just a way of doing (tax implementation) but also a way of thinking (tax deductibly). Tax planning is a lifestyle!
Michael Gerber from The E-Myth Revisited said this:
“The difference between great people vs ordinary people is that great people create their lives actively while everyone else is created by their lives, passively waiting to see what lives take them next.”
In the past 8 years, I spent a lot of time introducing businesses to the concept of proactive tax planning. I have seen many business owners benefited from my service by implementing effective tax planning strategies. Essentially, tax planning not only helped them pay as little taxes as possible legally and efficiently, tax planning has improved the quality of their lives in that effective tax planning empower business owners to have better controls over their business in terms of when to incur expenses, when to invest in technology, when to invest in equipment and when to sit back and relax. I have also seen others who would just learn the concept without thoroughly understanding it, hence limited by what they can do to reduce taxes efficiently and effectively. In conclusion, I summarize my advice for business owners:
A proper tax plan - Just like creating your business with clear goals and intention, when it comes to tax planning, you will never be successful if you do not have a proper tax plan with clear goals of exactly what are your tax strategies.
Attention to details – Tax planning is pointless if you do not have proper accounting system in place for your business.
For all business owners out there, if living intentionally, operating a purposeful business is important to you, please take the time to come meet us by signing up at https://www.eventbrite.com/e/3-key-methods-to-reduce-your-taxes-by-10k-tickets-81341726293.
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