This article is for high-income business owners, professionals, real estate investors, online sellers, entrepreneurs, and executives who wonder if they are paying more than their fair share of income taxes.
Most people agree “time is money.” This is especially true for people who self-employed, business owners, high-income executives, and professionals like attorneys and architects. Most of us can also agree we want to pay our fair share of income taxes and no more. And we want to avoid headaches and stress that come from taking short cuts when it comes to tax planning and small business financial success.
Here’s the video if you prefer to watch:
I am not an accountant or lawyer. I don’t even play one on Netflix. I’m a small business owner, investor, and traditionally-unemployable, creative, outlying misfit who knows business financials, sales, marketing, technology, and strategy better than the average Joe.
The most important lessons I learned cost me the most money over the years. One of the most valuable lessons I share with my clients is how to get your business and family tax returns ready for preparation by a professional accountant in one hour or less. It’s all about organization and delegation.
Tip #1 – Stay Organized
My biggest tip is to stay organized. All it takes is your commitment to saving time and money, then the discipline to set up a few paper file folders and use them all the time. One folder is for your business receipts. Another is for your tax-related documents such as invoices paid and anything your accountant will need for backup.
What I share is simply my personal approach as a business owner and advisor to other entrepreneurs, executives, and business owners. It works for me because it’s simple and affordable.
Tip #2 – Delegate to People You Trust
The other big key to my process is being able to pay for and delegate bookkeeping and tax preparation to professionals. If I were great at doing tax planning or tax returns, I’d probably be an accountant. But since I’m not, I am happy to pay professionals I can trust. This frees me to do what I do best.
It’s our nature to not want to pay a lawyer, accountant, or doctor unless there is something wrong. But waiting until something is wrong with taxes or your health makes it impossible for your accountant or doctor to prevent you from getting sick in the first place.
My accountant and bookkeeper pay for themselves. I’m pleased to delegate and invest in them.
Why wait until it’s too late and you end up paying way more than your fair share of taxes? Some would call this a waste.
This Is the Process I Explained In the Video
Okay, you like reading more than video. Cool! Here’s my process …
- Know your business. Business owners have significant advantages when it comes to tax planning and savings based on the tax laws. If you’re not in business, maybe you could find a legitimate way to be in business by starting a side gig or part-time business you can call your own.
- Surrender control. The tax law is massive and always changing. It’s impossible for anyone to keep up on the tax code unless they do it full time as a professional. Surrender control and hire professionals.
- Hire a bookkeeper. Invest in a bookkeeper who keeps your books every month. I give my bookkeeper, Debbie, direct access to my online accounts. She can get all the information she needs without me. Find a professional who charges fees you can afford.
- Hire an accountant. With your bookkeeper on board, now it’s time to be sure you have a proactive, planning-based accountant working on your team. This kind of accountant always uses the Tax Organizer and past tax returns to evaluate your situation and give you advice before filing your returns.
- Organize your file system. I use a simple, paper-based file folder system to organize my receipts and all the documentation I will need to file my tax returns. I add to these files day-by-day so I never have to worry about piles of papers stacking up.
- Complete the Tax Organizer. The Tax Organizer is used to update your existing accountant or hire a new one. When you complete all the information in the O=organizer and sign it, the accountant has the information they need to do their job. Accountants also factor your prior year tax returns. If you’re a new client you will need to provide copies in advance of your first meeting. If you’re using the same accountant, they will have your past returns on file.
- Review your financials monthly. Pay your bookkeeper to do your books every month. Have them send you the Income Statement and Balance Sheet at the end of each month. Review both documents. Look for any mistakes like expenses miscategorized, or unassigned. Ask your accountant or financial coach to help you understand your financial statements.
- Plan ahead. One of the worst things we can do with taxes is wait to the last minute, rush yourself and the accountant, and risk making a lot of mistakes and driving everyone insane. In the late Summer or Fall, check in with your accountant and ask to have a quick update meeting or call. Go over any changes in income, expenses, or anything that could affect your future tax bill. In the event something is wrong with a past return, your accountant can always file an amendment. The purpose of this conversation is having a forward look to pre-empt any tax surprises. Always plan ahead by keeping your accountant in the loop and be willing to pay them for their expertise.
- Get your part done in one hour. When it’s time to have your returns prepared for business and personal taxes, complete the Tax Organizer your accountant sends you at the beginning of the year. If your accountant does not send one, ask. If your accountant does not have one, find a new accountant. Be sure you are honest and thorough. Never underreport income. Never claim an expense for a deduction that does not have proper documentation and backup including a Mileage Log for business miles driven.
- Send the Tax Organizer securely. If you’re using the same accountant, all you need to do is send your organizer in a secure way to your accountant. They will have your past tax returns. If you seek a new accountant, they will want you to complete a Tax Organizer and provide 2-3 years of tax returns. The best of the best will want to know you are organized, honest, and thorough.
- Hire the best. Ditch the rest. Is your accountant proactive or reactive? Do they coach you to plan ahead and do what you need to do to manage your tax burden in a way that you are free to do what you do best? If not, maybe it’s time to find an accountant to help you. Who knows what that could mean for your bottom line or take-home pay.
In closing, paying your fair share of income tax is one thing as a business owner. But why pay more?
If you could save thousands of dollars in taxes each year by staying organized, using a simple filing system, hiring a bookkeeper and accountant you can afford and trust, wouldn’t you want to do so?
Being in business is hard. Keeping up with the tax law, books, taxes, and all the other aspects of running a business are impossible unless you are that kind of full-time professional. If you make paperclips, make and sell your paperclips. Doing what you do best only happens when you learn to delegate everything you know a professional can handle better than you. Then you know it’s worth investing to pay someone to help you keep more of what you make.
If you want to learn more about business and strategic planning, or how to find an accountant who can help you with tax planning and keeping more of what you earn, book a conversation by clicking here and going to my calendar.
