Here’s a checklist to help make sure you are on track for your tax planning this year.
Do you need to add an entity or change how an entity is taxed in your tax strategy?
Entities are one of the greatest tools to reduce taxes. Knowing the right time to add an entity and knowing the right entity to add can save as much as $10,000 per year in taxes. However, the entity needs to be in place in order for the tax savings to occur.
When I create a tax strategy with a client, it’s not uncommon for an entity to be created knowing that once it reaches a certain level of income, an election will be made to change how the entity is taxed. Missing this election or not making it at the ideal time can be a very costly tax mistake.
Now is the time to look at adding an entity or changing how one of your existing entities is taxed. Waiting any longer could minimize the tax savings for this year.
Are your entities paying you the optimal amounts to minimize your taxes in your tax strategy?
Optimizing how you take money out of your entity is another effective way to reduce your taxes. The amount that is taken and how it is taken can have a huge impact on your taxes. It can also get the unwanted attention of the government.
Now is a good time of year to check in on how your entities are paying you because if changes need to be made, there is still time left in the year to make those changes without having to do one big adjustment at the end of the year.
Is your documentation in place?
Documentation is a great way to successfully get through an audit. It is also a great way to increase your tax deductions because proper documentation leaves less room for deductions to get missed.
Documentation is best when it is kept current. An auditor can usually tell when someone has gone back and created their documentation after-the-fact.
Documentation includes keeping proper receipts, keeping mileage logs for your business vehicle and keeping hour logs if you claim real estate professional status.
Don’t get behind with your documentation – now is the time to get caught up.
Have you been reimbursed for expenses you’ve paid personally?
Commingling business and personal funds is never a good idea. It can jeopardize the legal and tax status of your business.
To avoid commingling of funds, it’s best to pay business expenses with business funds and personal expenses with personal funds.
There is one exception to this and that is business expenses paid by you personally. It is a common business practice for a business to have policy in place to reimburse employees or owners for certain expenses. Common examples include lunch with a client or travel for business purposes.
If you have paid for any business expenses personally and have not been reimbursed, it’s time to submit that expense report and get paid. These expenses are easy to forget about and that means the tax deduction could get missed.
And, if your business doesn’t have a policy in place to reimburse you for these expenses, it’s time to get that in place too.
Is your bookkeeping up-to-date?
Have you noticed that each of the above is impacted by your bookkeeping?
Bookkeeping is one of the most powerful tools in a tax strategy. Without up-to-date bookkeeping, it is impossible to determine if anything in your tax strategy needs to be adjusted in order to maximize tax savings.