Today’s question is: Is tax planning more than knowing how much quarterly estimates I have to pay?
We received this question from a small law firm owner, who was a fellow attendee of a Rainmaker Retreat with Stephen Fairley and the Rainmaker Institute.
We talk a lot about proactive and strategic tax planning here at Better Numbers for Lawyers, so the short answer to this question is: ABSOLUTELY! Tax planning is much more than knowing how much quarterly estimates you have to pay.
And let me start the longer version of the answer with this: it’s absolutely not my new friend’s fault that he did not know that.
It wasn’t his fault that his tax accountant never let him know that they are only doing tax compliance for him, and not serving as his tax planners and tax coaches as well.
Because you know, you can always find good people who can put the right numbers in the right boxes on April 14th, but that does not necessarily means that they also tell you know about tax planning opportunities available to your unique situation.
So the first question is: When was the last time your tax accountant came to you and said: Here is an idea that I think will save you money?
If the answer is never, then unfortunately you outgrew your current tax accountant or CPA.
Did you now that by conservative estimates US taxpayers overpay their taxes by 160 billion per year? This is the largest expense of a business every year, yet so many of us don’t give it a second thought.
Please do yourself a favor and find yourself a tax coach who will analyze your unique personal and business tax picture, will ask you some questions and then present you with a written tax plan with recommendations of which tax strategies apply to you at this time. And let’s not leave out the 2 most important aspects of a tax plan: an estimate of how much you’ll save by putting in place these tax strategies, and an implementation plan, which if it’s done correctly it should absolutely not take up a lot of your own valuable time.
So when I say tax strategies, I mean 100% legitimate and IRS approved strategies. We‘re not talking about offshore investments or shady practices here. Fortunately there are plenty of IRS approved strategies that we can use and still sleep well at night. So make sure your tax coach or tax planner is certified and a recognized expert in this field. You, as a lawyer, provide your clients your best, so why not work with the best expert when it comes to your own family and business?
So what if somebody already has a CPA they like working with?
Sure. Some of the law firm owners we work with have their own tax accountant and they go back to them to have the strategic tax plan implemented. Some quickly realize the power of being proactive and the peace of mind that comes with working with a CPA who is interested in seeing you not just once a year at tax time, but keeping in touch with you every month of the year.
As you can imagine, this is a totally different kind of relationship. It’s a more intimate relationship when we technically prepare a projected tax return for our clients each quarter, so you we never get a surprise at taxtime.
Borbala, can you give us a real life example?
I can think of this great client we have, who we became good friends with. His practice grew from $50,000 profit in one year to literally a couple of dollars short of $200,000 the next year. He was in our bootcamp first and then we became his CPAs and CFO’s mid-year.
Of course we immediately did a tax projection for him and told him that the little over $100 quarterly estimate vouchers his former accountant gave him will by no means cover the taxes on the quadrupled profit. Also, as we still had time, we presented to him and ultimately implement some tax strategies that year that immediately saved him $5,700 at tax time. Which by the way more than paid for this bootcamp and tax plan.
Then the following year we implemented some more tax strategies that will save him more than $15,000 every single year. Just imagine your spouse’s or your kids’ face when you tell them that you can take an extra nice vacation every year instead of sending that money to the IRS. Or you can finally pay off your credit cards or run an extra marketing campaign that will bring you more business in the long run.
So we get a tax plan. How long is it good for?
Of course as good as a tax plan is, it has to be continually updated as your business grows and your family situation changes, and the tax laws can also change. There are different tax saving opportunities for different stages of every business and personal family situation. For example there is a widely used strategy we only recommend after you have about $50-60k profit per year. There is another strategy that comes handy if you have a lot of out of pocket medical expenses, like kids’ braces that can run up to $8-10 grand or even doctor prescribed weekly chiropractor or massage sessions or a private weight loss coach. And I’m not talking about a getting a simple HSA or FSA here.
So please do yourself, your family and your business a favor and find a proper tax coach or tax planner so you don’t pay more taxes than you have to. Over a couple of decades the difference could be great vacation memories with your family, or driving your dream car or a significantly bigger retirement nest egg.
If that sounds like something you want to explore, take us up on our offer to give you a free mini tax-plan and tell you how much of your tax bill every year could stay in your own pocket.
Please call 216-333-3413 or check us out at BetterNumbersForLawyers.com.
If you have a question for us, please email to Questions@LawBusinessPodcast.com
Thank you for listening, talk to you soon!
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