Finance

Attention Small Business Owners: You’re Probably Overpaying on Your Taxes

Dan Nicholson

Most small business owners are not aware of the myriad of tax rules and regulations in the U.S., resulting in them missing out on strategic opportunities to save money. Benchmarking your accountant can help you pay less in taxes and help fund your longer-term goals.

Benchmarking & End-of-Year Tax Planning

Are you overpaying your taxes?  

If you’re like most small business owners, you probably don’t know how to answer that question.

And unfortunately, many small business owners are consistently paying the highest average tax rate in the U.S.

That’s because most people—even those currently working with a CPA—aren’t aware of the myriad of tax rules and regulations in the U.S., resulting in them missing out on strategic opportunities to pay less in taxes while also funding their goals.

Benchmarking—the process of evaluating if your accountant is competitive and on par with others—can help. Benchmarking involves comparing a company’s performance to determine how its process, productivity and competitiveness compare with industry standards.

It’s like getting an annual check-up for your business—similar to getting your car serviced; reviewing your insurance rates to ensure you’re getting the best deal or evaluating your stock portfolio’s performance to determine if it’s meeting your investment goals.

We benchmark a variety of the facets of our personal and professional lives. But when was the last time you benchmarked your accountant? Most small business owners don’t know the answer to that question either.

Benchmarking Your Accountant: Six Questions to Ask

If you’re not sure and are grappling with where to start, here are five simple questions to ask:

1.   When my Accountant says this year's taxes, are they talking about the previous calendar year?

2.   Does my Accountant fully understand my business in order to represent the info on my return correctly and help ensure I’m paying the least amount of taxes legally required?

3.   Does my Accountant keep me up to date on yearly tax code changes? Do they show me how to use those changes to my advantage?

4.   Does my Accountant limit my risk with the IRS? Specifically, do they do things like make protective elections on my return? Do they document my reasonable salary?

5.   Does my Accountant show me how to turn things that aren't a deduction into a deduction?  

6.   Does my Accountant teach me legal homerun strategies based on Tax Court Cases and IRS Audit Manuals to help reduce my taxes by up to 100% (i.e., zero tax liability)?

If you answered “yes,” “don’t know,” or “no” to the benchmarking questions above, it’s time to consider new options for an accounting partner.

Maximize Your Tax Savings with an Accountant Who Thinks Like an Architect

As you start the benchmarking process, you’ll likely realize qualified, forward-thinking CPAs are an endangered species. According to Thomson Reuters, 75% of the CPA workforce hit retirement age in 2020, and 44% of the industry set to retire in the next five years.

And regrettably, many of the remaining CPAs are operating like archaeologists. What I mean by that is they’re living and working in the past. By definition, archeologists are experts on history—people who work with historical documents and artifacts.

Many CPAs hold similarities as they look at financial records and histories, W-2s, receipts—all their own forms of artifacts. The point is they’re looking to the past to assess the past.

Unfortunately, those small businesses I mentioned earlier who are often overpaying on their taxes are working with archaeologists. As you benchmark and consider your go-forward accounting partner, I encourage you to consider one with a go-forward mentality—one who thinks and operates like an architect.

Architects play very different games than archaeologists. They’re mapping and constructing futures. They’re plotting things that will come to life years from now, and they’re doing that now.

Here are a few ways to determine if an Accountant you’re considering is thinking like an architect:

·   They make sure you don’t leave money on the table—make sure you’re taking advantage of all the deductions and credits available to you.

·   They help you see how you can maximize your tax savings by claiming deductions for existing parts of your life.

·   They help you understand what a homerun strategy is and how it can reduce your tax bill by up to 100.

Conclusion

By taking a future-focused approach to taxes and benchmarking your accountant, you can pay less and achieve your financial goals. To do this, you need an advisor who is forward-thinking and can help you build a tax strategy that aligns with your business goals. Think of your advisor as an architect who will help you design a better financial future.

Dan Nicholson is the author of “Rigging the Game: How to Achieve Financial Certainty, Navigate Risk and Make Money on Your Own Terms,” deemed a best-seller by USA Today and The Wall Street Journal. In addition to founding the award-winning accounting and financial consulting firm Nth Degree CPAs, Dan has created and run multiple small businesses, including Certainty U and the Certified Certainty Advisor program.

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