| When I coach clients on their tax strategy to legally | | | | ** Question #1 ** |
| reduce their taxes, many of the strategies require | | | | Do you need to change how your entity or entities are |
| monitoring throughout the year. The monitoring serves | | | | taxed? |
| two primary purposes: | | | | Sometimes an entity is formed with the strategy that |
| #1 To Monitor the Numbers | | | | once that entity hits a certain target income, then how |
| Many tax strategies are based on income and | | | | that entity is taxed needs to change. This can be a |
| expenses being at certain levels. It is not uncommon | | | | very costly tax mistake if it is missed! |
| for these numbers to change during the year. Certain | | | | ** Question #2 ** |
| changes can impact the effectiveness of the tax | | | | Do you need to add an entity or restructure how your |
| strategy so it is critical to know if the numbers change | | | | entities are owned? |
| so changes can be made to the tax strategy. | | | | Knowing the right time and the right entity for your tax |
| #2 To Monitor the Documentation | | | | strategy can often save as much as $10,000 per year |
| Part of the tax coaching I do with clients includes | | | | in taxes. |
| coaching them on how to document the transactions, | | | | ** Question #3 ** |
| the activity, the income and expenses that impact their | | | | Are your salary and distribution amounts from your S |
| tax strategy. Proper documentation increases the | | | | Corporation optimal? |
| accuracy of the information my clients provide to me | | | | S Corporations are the most popular entity for |
| to do tax planning and prepare their tax returns. It also | | | | businesses. The mistake I see most often is S |
| provides the support the IRS would want to see if my | | | | Corporation owners not balancing the amount the S |
| client is audited. Part of my mid-year planning process | | | | Corporation pays them as salary versus distributions in |
| includes checking in with my clients on how their | | | | order to reduce their taxes and their audit risk. |
| documentation is coming along. | | | | ** Question #4 ** |
| What is your system to make sure you monitor your | | | | Is your accounting up to date? |
| taxes throughout the year? | | | | If your accounting is not up to date through at least the |
| If you don't have a system to monitor your taxes | | | | first quarter of 2008 (March 2008), then it is not up to |
| throughout the year, you need one and here is why: | | | | date and you need to take action now! Accounting is |
| Have you ever met with a CPA or tax preparer and | | | | the heart of every tax strategy. Without current |
| been told you could have done something about a tax | | | | accounting, it is impossible to determine the tax |
| problem if only you had acted before the end of the | | | | strategies that will generate the most tax savings or if |
| year? | | | | anything needs to be adjusted during the year to |
| And while year end tax planning has its place in a tax | | | | protect the tax savings. |
| strategy, often times there is simply not enough time at | | | | ** Question #5 ** |
| the end of the year to get the best tax results. That's | | | | Are your travel, meals and entertainment expenses |
| why mid-year tax planning is so important. | | | | properly documented? |
| I have a system in place to make sure this monitoring | | | | Travel, meals and entertainment are among the most |
| happens for my clients. Part of that system includes a | | | | heavily scrutinized expenses. This makes proper |
| custom checklist designed for each specific client. Here | | | | documentation of these expenses a key part of |
| are the top 5 questions from that checklist. | | | | every tax strategy. |