For many business owners, taxes are viewed as a once per year obligation. Every spring, you compile your financial information for your accountant, who in turn prepares your tax returns.

As a taxpayer, you probably expect your accountant to take your information and help you minimize your overall tax liability – and that’s exactly what a good accountant will do. But did you know that many opportunities for strategic tax minimization have already passed by the time “tax season” arrives?

The fact is, if you wait until spring to start talking to your accountant about your taxes, you may be seriously limiting their ability to work strategically on your behalf, and the results can be substantial. Depending on your specific situation, the difference between planning for your current year taxes in the fall versus looking at your taxes in the spring can be thousands of dollars of tax liability.

What is tax compliance?

From an accountant’s standpoint, tax compliance is what takes place when preparing to file your tax returns. As the term indicates, when it comes to filing tax returns, a CPA’s priorities include ensuring that all of your taxes are filed correctly, that your tax liabilities are paid, and that you are complying with all local, state and federal tax requirements. As a part of annual tax compliance, your CPA will work with the information that you provide to look for any tax incentives, including credits and deductions that may allow for a reduction of your taxable income or taxes due.

Why can’t tax planning take place at the same time as compliance? Many opportunities for tax planning require action during the taxable year in question. By the time tax season comes around, many opportunities for planned minimization of tax have come and gone. In other words, what you could have done in October or November to minimize your taxes may no longer be an option in March or April. When filing taxes, you are reporting on what happened in the previous year. In the fall, you can still affect the facts of the current tax year.

What is tax planning?

Tax planning involves proactively looking for legal ways to minimize tax liability. It requires an in-depth knowledge of both your specific tax situation and state and federal tax laws. In many cases, effective tax planning also requires being able to project both business and personal tax liabilities, along with the effect that planning choices will have on both.

Good accountants will tell you that tax planning takes place throughout the year, while tax compliance is focused in the spring. In reality, tax planning needs to take place by the fall of the tax year in question. Most opportunities for tax minimization are still available as long as the tax year clock hasn’t run out. Planning in the fall gives your accountant ample time to put any tax planning strategies into place.

Why should you work with a great CPA on tax planning

Tax compliance is a requirement, but strategic tax planning can often create significantly more value. Good tax planning can have a tremendous impact on your bottom line (or take home income). While two different tax preparers may prepare a very similar return, two different CPAs may deliver completely different value when it comes to your tax minimization plan. The more insightful and knowledgeable your CPA and the more they know about your business and personal interests, the greater value they will bring to your planning process.

Savvy taxpayers also understand that tax planning isn’t just a luxury. While it may cost a bit more than tax compliance, the value that you receive in terms of savings can be far greater. In general, taxpayers that decide to skip the tax planning process in order to save on fees will likely wind up financially behind those that make the decision to invest in planning.

What opportunities exist for tax planning?
Without knowing the ins and outs of your business and family situation, it is difficult to pinpoint your specific tax planning opportunities. That’s why the tax planning process is so important. On the individual side, tax planning opportunities may include:

• Medical savings plans such as HSAs and FSAs
• Capital gains planning
• Retirement and investment account savings
• Education savings

For business owners, the opportunities for savings can be even greater. These may include:

• Depreciation optimization
• Business incentives and credits
• Export incentives
• Income planning
• Tax and organizational structuring
• Investment incentives
• Green energy incentives
• Hiring incentives

Tax planning is a critical part of the value we can deliver to you. Remember, plan now, save later. A little bit of planning will go a long way toward reducing your future tax bills, and the sooner you plan, the more opportunity for savings you will have. To get started with your 2015 tax planning, call us today.