Unsexy Ways to Save Thousands in Taxes
Death and taxes. According to Ben Franklin, those are the only two certainties in life. Many believe that the saying is a condemnation on taxes or that it somehow indicates a negative connotation towards the payment of taxes – but that isn’t the case. Ole Ben used that phrasing as a warning to let us know that taxes are coming one way or another, so you better be prepared.
Today’s article isn’t going to be some elusive ninja-deduction that no dentist has ever heard of before, nor is it some obtuse area of the tax code that involves manipulation around confusing entity selections. In other words, it’s not a sexy way to save in taxes, but it’s one of the most effective ways to save in taxes that I’ve come across in my decade of helping dentists and entrepreneurs legally save on their tax bill.
The way to save on your taxes is actually fairly simple, assuming you have a competent and caring tax adviser. This mysterious way to save is to communicate with your CPA on a regular basis so that both your CPA and yourself are prepared for your tax liability. Your CPA should effectively be communicating with you the anticipated tax liability, while you need to be effectively communicating to your CPA what is going on with your tax situation.
Hopefully, your CPA is proactive about reaching out and discussing your ever-changing needs as a taxpayer and business owner, but just in case, I’m going to give you a non-exhaustive listing of many of the times you’ll want to keep your CPA in the loop.
You’ll want to let your CPA know anytime you:
Have a change in marital status. Both moving from single filing status to married filing jointly as well as going from married filing jointly to single creates a significant impact on your tax liability. If you wait too long to tell your CPA, you could be in trouble. There are also items in a divorce decree that should be agreed upon before finishing up the divorce.
Have a child. Knowing when a child comes into the picture may seem like an obvious situation, but many wait until tax season to let the CPA know. If you let them know beforehand, they can help you gameplan on potentially employing the little one for responsibilities such as marketing.
Plan on purchasing a business. Let the CPA know before this happens as it can affect the amount you will be paying in for taxes
Plan on selling a business. Your CPA could have ways in which you could save when selling your practice by setting your assets up in a specific manner.
Anticipate a large equipment purchase. Section 179 (the deduction you receive for buying equipment) greatly effects your tax liability for the year, and your CPA will need to be aware of any big purchases.
Anticipate a better than average year. Believe it or not, CPAs don’t like it when we give you a surprise on April 15. Typically, these surprises come from really good years compared to prior years and the CPA just didn’t have a chance to project the change on tax liability.
Participate in a new partnership or some other investment in which you’ll be receiving income or sharing in losses.
Purchase or sell real estate.
Contribute money to your business. This includes when you pay for a business expense out of your personal account rather than your business account. This happens quite a bit and is an area that taxpayers lose a lot deductions because the taxpayer simply forgets to report it and the CPA can’t see it on their own.
Start or plan to start a retirement plan for your business.
Plan on changing your health insurance plan to/from an HSA.
Purchase a milling unit. In-house manufacturing of property means you qualify for Section 199 deductions. (Note: This is assuming they aren’t revoked in the new tax plan; as of right now, they are on the chopping block)
Your CPA should be happy to hear this information from you, but if for some reason they are confused and/or don’t seem to care, they may not be doing a great job of tax planning. Believe it or not, some CPAs don’t even do tax planning, but most Dental CPAs that I’ve ran across do offer tax planning in some form of fashion or the other. Assuming you do have a CPA who offers such specialities, this list will hopefully assist you in understanding when you should be contacting your CPA for effective tax planning.