We all know that regular vehicle maintenance is one of the best ways to protect our investment in our cars; performing a tune-up will extend the life of your vehicle.
But what about an annual checkup of your tax liabilities? Something more than merely plugging in the numbers on your tax returns. Unfortunately, it usually takes a major life event – such as selling a business, adding a partner, or product line – to sit down and review the profitability of your business and tax attributes.
This purely reactive way of managing our taxes hinders us from creating real wealth.
Inspecting 15 key items of your business and personal tax matters regularly can save you the nightmare of a major financial breakdown and increase your profitability.
To help, here’s Moskowitz LLP’s checklist, which covers 15 key tax areas to review.
- Reduce Your Income Taxes: Plan for next year’s taxes this year. What can you do to minimize taxes? Analyze how to reduce your tax liability and your chances of triggering an audit. Review your current status and details about the impact of new or pending changes in tax law, depreciation allowances, tax rates, and develop tax-minimizing strategies tailored to your specific situation. Our previous blog post on Above-The-Line Tax Deductions offers some ideas of where to begin.
- Review Your Financial Statements: It’s important for the financial statements of companies to be as accurate as possible. Accurate financial statements are critical for government reporting, and it critical for companies to maintain and report accurate tax figures to avoid any problems. In addition, lenders and investors will carefully review financial statements for consideration. Finally, companies can make better decisions and be planning when they have accurate financial statements. Different statements like fund flow, working capital, and cash flow must be reviewed regularly. This is done to evaluate the amount of money a company is making, and the amount that’s needed in the future.
- Budgeting and Forecasting: Budgeting and Forecasting are truly the foundation of all small business finances. If your budget is working as it should, you can practically put your goals on autopilot! If you have no budget, it will be tough to accomplish anything at all. Not having a budget just means that now is the time to get started. Click here to view our forecasting datasheet.
- Review Your Retirement Plans: Are you contributing the maximum to your 401(k) plan? Can you add to your retirement savings and reduce your taxes by adding a defined benefit plan or defined contribution plan? These aren’t just for big companies anymore. This is one of the best tax-saving strategies available.
- Business succession planning: Creating and implementing a sound succession plan will provide several benefits to owners and partners: It ensures an agreeable price for a partner’s share of the business and eliminates the need for valuation upon death because the insured agreed to the price beforehand. The policy benefits will be immediately available to pay for the deceased’s share of the business, with no liquidity or time constraints. This effectively prevents the possibility of an external takeover due to cash flow problems or the need to sell the business or other assets to cover the cost of the deceased’s interest.
- Review Your Estate Plan: Biden’s tax plan is likely to reduce the Estate Tax Exemption amount to $3 million or less. This is a big reduction from the current exemption of $11.5 million exemption. What does this mean for your estate plan? Failure to plan now for these changes could mean that your loved ones will be significantly taxed by the government. Further, it is important to make sure your assets are titled property and helpful to have the schedules updated as life changes. See our previous blog post regarding Estate Planning for more information.
- Review Your Investments to minimize taxes: Setting your investments on autopilot with a seasoned investment advisor makes the job easier. But, you still need to do a review of your progress at least annually to review potential tax savings. As you get older and your circumstances change, it’s likely that your risk tolerance will too. This is especially true as you get closer to retirement. Many managed portfolios, such as robo-advisors, do this automatically. But, if you have multiple investment accounts, you may have to make some manual adjustments. The only way to do this is by knowing what your big picture portfolio allocation is. Once you do, you can rebalance accordingly. You should be rebalancing your investments on a big picture level at least once a year to reduce your taxes.
- Protect Your Assets: First on your annual financial checkup to-do list is considering how well you are protecting your assets. Start by reviewing your insurance: property, E&O, Life, health insurance, auto insurance. If you own rental property or a business consider forming LLCs or corporations to protect yourself from claims exceeding insurance coverage.
- Reduce Your Debts: The ultimate objective with debt is to make it go away, at least in time for retirement. It’s easy to get so accustomed to debt that you simply pay the monthly bills, and ignore the big picture. At least once a year you should summarize all of your debts so that you know exactly how much you owe. In addition to reviewing your statements, you should also get a copy of your credit report at least once each year to make sure you don’t miss any obligations. This will allow you to examine your credit report for potential mistakes and potential identity theft.
- Charitable planning: By using the proper tax planning strategies, charitable contributions can reduce income taxes, capital gains taxes, and estate taxes. Commonly used strategies include the use of charitable trusts and careful selection of assets for distribution to various beneficiaries—charitable and otherwise.
- Pre-Nuptial or Post-Nuptial Planning: A pre-nuptial or post-nuptial agreement is useful to protect any valuable family assets, inheritance, or family business assets; You may also preserving assets for your children from a previous relationship.
- Life Insurance Planning: Life insurance is often used in a wealth transfer plan in conjunction with an irrevocable trust. When owned by a properly structured irrevocable trust, the death benefit from a life insurance policy can provide liquidity to offset federal or state wealth transfer taxes and it can prevent a forced sale of a family business by purchasing assets from your estate or by lending money to the estate.
- Review Real Estate Holdings: Tax laws applicable to real estate developers and investors are complicated, but are often very taxpayer-friendly. Taking full advantage of these favorable provisions, such as bonus depreciation and cost segregation, can save a fortune in taxes, but require careful review and planning.
- Review Tax Notices: Tax notices are sent for any number of reasons. Sometimes there was an error on a tax return filing. Other times there was an issue on the tax agency’s side. Whatever the case, it should be reviewed and responded to immediately.
- Review Eligibility for Business Tax Credits: Business owners often overlook valuable business tax credits. The Research and Development Tax Credit, Work Opportunity Tax Credit, Credit for Employer-Provided Childcare Facilities and Services Credit for Small Employer Health Insurance Premiums, and Retirement Plan Startup Costs Tax Credit can add big dollars to your tax refund.
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We look forward to speaking with you and learning more about your situation, goals, and concerns. That’s why we are offering you a complimentary, no-pressure phone call with a Moskowitz LLP advisor, to give you the opportunity to assess your tax and financial situation and review your financial goals.
Remember a blog post or email blast is not a substitution for obtaining personal legal and tax consultation. This information is not intended to be legal or tax advice nor does it form an attorney-client relationship between us.