Making Your Tax Savings a Reality

No tax strategy is bad and will cost you a lot of money that you never even knew you had – Joshua Gamen
——————————————–
Last week I shared a few tips about forming your tax strategy.

A tax strategy is a step-by-step action plan that ensures you are paying the least amount of tax allowable by law, regardless of your business or investment situation.

A tax strategy is comprehensive. It considers:

– Your personal and financial goals and dreams
– Your business, your investments and your family situation
– How your businesses and investments are owned
– The appropriate entity structure for your business and investments
– Your current situation to uncover deductions and other permanent tax saving opportunities

Those who are most successfully in their tax strategy make it a part of their every day activities. To them, a tax strategy is not a one-time event. Rather, it is something that becomes part of their routine.

A tax strategy helps you to view your every day activities in a different way – one that works toward the goal of permanently reducing your taxes.

The reality is that just about everything you do can have an impact on your taxes. So, why not make sure that impact is a positive one?

Here are a few examples of every day activities that can impact your taxes:
– Paying expenses
– Receiving money from an entity you own
– Putting money into an entity you own
– Having a meeting with partners, vendors or advisors
– Buying or selling investments
– Having an important discussion about your business or investments

The above items are activities you probably already do on a regular basis. By keeping your tax strategy in mind while doing these activities, you can improve the results of your tax strategy – all without having to do anything out of the ordinary.

Paying your expenses
When you pay your expenses, who is paying for that expense? Is it you personally? Should it be your entity instead? What type of documentation do you need to keep for your tax strategy?

Unless you have your tax strategy in mind, it is easy for this ordinary transaction to have a negative impact on your taxes.

You may pay for business expenses personally and forget to have your business reimburse you – this means the expense gets missed as a tax deduction.

When you keep your tax strategy in mind, it will be routine to have your business reimburse you. Or, even better, it will feel wrong to not have your business pay for the expenses in the first place.

Receiving money from an entity you own
Every payment you receive from your entity can have an impact on your taxes. This may include salary, distributions, expense reimbursements or other forms of payments.

Your tax strategy maps out the best way to take money out of your entity. Making sure those payments are treated as they are supposed to be, should be part of your every day activities.

For example, if you are receiving a salary, it should look like salary. This means it’s paid on a set schedule (weekly, bi-weekly, bi-monthly, monthly, etc.) and the proper taxes are withheld.

Similarly, if you are taking a distribution, it should look like a distribution. Distributions are usually not paid more frequently than quarterly. Also, distributions are usually not a set amount as they are typically tied to the profitability of the entity. If your distribution is paid every two week, it looks more like a salary and this can have a negative impact on your tax strategy.

Keeping this in mind, as you receive payments from your entity, helps the success of your tax strategy.

Having a meeting with partners, vendors or advisors
If you are meeting with a partner, vendor or advisor, odds are you are discussing items that impact your tax strategy. These meetings likely cover topics important to your tax strategy, like investments, new opportunities, strategic decisions or major purchases.

All of these are great to have documented in the form of meeting minutes. Meeting minutes provide tremendous support for deductions, investments and business purpose – all of which help the success of your tax strategy.

Your Tax Strategy
Those who are most successful in their tax strategy are those who have incorporated it into their routine. When reaching for a credit card to pay for lunch, they are asking themselves, “Should I pay with the business card or my personal card?”

It is the every day activities that make tax savings a reality.

                                                                                                                                            
Tom Wheelwright
Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s