Have you ever met with a tax advisor and been told you could have done something about a tax problem if only you'd acted sooner?
When most people consider tax planning, they often think:
It's something you do if you have your tax return prepared. It's something you do by the end of the year.
While https://financialadviseroxfordshire.uk/best-tax-planning-oxfordshire/ of these times have a place in a tax strategy, often times it is way too late or there isn't enough time to get the best results.
This is why I'm such a big fan of year round tax planning.
ALL YEAR ROUND Tax Planning
Year round tax planning will not mean you spend the entire year focusing on your taxes. In fact, year round tax planning can be carried out in very little time and still have a big impact when it comes to reducing your taxes.
When you are developing your all year round tax planning strategy, listed below are 3 areas to focus on:
#1 The Entities
Entities are perhaps one of the most effective ways to lessen your taxes - when used correctly. When used incorrectly, entities can boost your taxes.
Here are several questions to ask yourself about your entities.
Should you change how your entity or entities are taxed?
Sometimes an entity is formed with the strategy that once that entity hits a certain level of income, then how that entity is taxed must change.
This can be a very costly tax mistake if it's missed. Do you need to add an entity or restructure how your entities are owned?
Knowing the right time and the proper entity for the tax strategy can save around $10,000 per year in taxes.
Regularly reviewing the entities in your tax strategy helps to ensure each entity is providing maximum tax benefits.
#2 The Numbers
I'm constantly sharing that tax planning is about the numbers.
Most of the questions I'm asked I answer with - let's run the numbers. Many tax strategies derive from income and expenses coming to certain levels. It is not uncommon for these numbers to change during the year.
Certain changes in the numbers can impact the effectiveness of the tax strategy. It is advisable to know once the numbers change so timely adjustments could be made to the tax strategy.
#3 The Documentation
When it comes to permanent tax savings, the 3 most important words are:
Documentation, Documentation, Documentation!
Proper documentation escalates the accuracy of the info you provide to your tax advisor. This helps your tax advisor do more for you since they have good information. Proper documentation also supplies the support the government will want to see if you are audited.
Best of all, once you keep proper documentation, you do a better job of identifying all of your deductions so it's a terrific way to reduce your taxes.
Documentation can include:
Annual meeting minutes
Proper bookkeeping
Keeping receipts
Loan documents between you and your entities
Agreements between you and your entities
Mileage logs Activity logs (particularly in the U.S. for individuals who claim "property professional" status)
It is very an easy task to get behind on documentation. This is exactly why I like to include it in year round tax planning.
Start today
The small things add up. Identify one small thing you can do today to start your all year round tax planning strategy. It is usually one very small thing. Then, build on that every day.