In The Waning Days of 2014, This May Be The Most Valuable Tax Savings Tip You’ll Read Anywhere
By Garrett B. Gunderson
This is the perfect time of year to be looking ahead and working in partnership with your accounting advocate to review your tax strategy and be certain you are on course to keep your tax bill in check – for 2015.
Yes, you read that correctly. 2015.
The 2014 calendar year is almost history, and while many business and practice owners awaken each November and December to go hunting for year-end tax savings ideas, they are approximately 12 months too late to truly maximize the potential advantages of well-thought and executed tax planning.
You may have noticed that in the opening sentence of this article I referred to your “accounting advocate.”
Most people describe this under-utilized and under-appreciated professional as an “accountant” – which technically is correct.
But too often the images we have of our accountant – whom we meet with maybe once or twice a year, usually between January 2nd and April 15th – is of a cyborg-like records processor – part human, part machine – who ingests our bank statements, credit card logs, cash receipts and other documents and then, voilà, spits out our business and personal returns like a can dispensed from a soda machine.
I refer to my accountant as my “accounting advocate,” because a quality, properly utilized accountant is really a tax-planning and savings partner.
I speak with or meet with my accountant throughout the year, to review our tax philosophy (more on this in a minute), monitor my financial performance to date, telescope any IRS rule changes that might be on the horizon, and embrace tax savings strategies that will accelerate both my income and my deductions.
Here’s another unusual aspect of my relationship with my accounting advocate: I pay him richly.
When small business owners commoditize their accountants, assigning their tax preparation to the lowest-priced bidder, what they typically get is qualified performance, but not quality.
Would you select your family physician, dentist, or chiropractor primarily on the basis of the lowest available hourly rate? Likely, not. Then why subject the health of your business and finances to low-cost operators?
I find that the added value my well-paid accounting advocate brings to me and my businesses is an investment whose returns far offset any savings I might realize by scrimping on my choice of CPAs.
Selecting and working closely with an accounting advocate who will help you develop and implement a long-term tax philosophy is one of the “New Rules of Business Success™” that sets Freedom FastTrack members apart – and ahead – of so many other business owners.
There is a sharp distinction between tax preparation and savings tips, and a financially rewarding tax philosophy.
Most people can sum up their current philosophy as it pertains to taxes in just three words: “I’m against them.”
A bona fide, Freedom FastTrack-style tax philosophy is a little more sophisticated than that.
It begins, as Brett Sellers so articulately details in this edition’s Monthly Spotlight, with the conviction that how you pay and avoid taxes must support your primary business goals and strategies.
Falling over backwards – in the business sense – to cut your tax burden is a rookie mistake.
Each business and practice is unique, so it requires an individualized tax philosophy that supports the business owner’s unique objectives and Soul Purpose. All of the false financial idols that I topple in my bestselling book, Killing Sacred Cows, must be expunged from your tax planning: So long 401(k)s; adios scarcity mindset; ta ta to cash flow corks.
In their place, you and your accounting advocate want a flexible approach that provides for long-term wealth generation, married to an abundance ethos, and the pursuit of your life’s calling.
I liken a good tax philosophy to a speedboat – sleek, powerful, capable of fast acceleration and easily maneuvered. By comparison, Uncle Sam and the IRS are co-captains on a massive cruise ship.
In the time that it takes the U.S.S. Taxman to turn and displace one of my tax philosophy components, my accounting helmsman and I have prepared for the contingency with multiple other well-plotted courses.
At the moment, I personally am working with my accounting advocate set up a tax-advantaged trust for my two boys – consistent with my life’s Sole Purpose which includes providing well for them. As art lovers, my wife Carrie and I have also been taken by the prospect of purchasing photographs that we love, enjoying them and displaying them for colleagues and clients, then donating them down the road in return for a deduction of the then-appraised value.
What excellent examples of a tax philosophy – tied to my family and my business – in ways that my accounting advocate can suggest because he and I have taken the time to look at tax strategy through the prism of the Gunderson Family’s lives.
A robotic, cyborg accountant – if he or she would offer any advice whatsoever – would likely trot out the go-to mantra of all board-certified CPA lemmings: “Why not start a tax-qualified, employer matching, defined contribution pension plan – typically a 401(k) – for your employees?”
(I could write a book about why that’s not a good idea. Oh, yeah. I did write a book explaining why.*)
A savvy accounting advocate can contribute in innumerable ways. He or she can help determine if you’re paying yourself properly; whether you’ve set up the right legal structures to insulate you from unnecessary tax obligations; if cost segregation of your office space is being handled well; if it’s really wise to defer this year’s taxes to future years; what role charitable trusts might play for you; how to minimize or avoid capital gains taxes, etc.
One Freedom FastTrack member recently saved roughly $250,000 in the first year alone by moving from a cash to an accrual accounting method.
So, indeed, pick up the phone when you’re done reading this article and make a year-end appointment with your accountant – if he or she is qualified to serve as your advocate – and declare that you’re ready to begin discussing the construction of a durable tax philosophy for 2015 and beyond.
Plan to talk to or meet regularly with your accounting advocate – especially when it is NOT tax season. The summer months are usually the most productive time to do clear-headed brainstorming with your accounting advocate.
If your current accountant functions more like a franchised strip mall tax service for business owners than a advocate for you, then use the time remaining in calendar 2014 to identify and engage a new accountant.
Solid business plans are not written with an artificial year-end deadline barreling down on the owner. Neither should solid tax strategies be devised to the tune of Auld Lang Syne.
Freedom FastTrack Empowerment Questions™:
Looking to ascertain whether your current tax preparer is suited to serve as your accounting advocate? Here are three icebreakers you might pose to begin the assessment process:
What are some examples of individualized tax strategies and creative approaches you’ve undertaken on behalf of other clients?
Listen closely. One of the most important words in the question is “individualized.” Does the preparer display a firm grasp of the clients’ distinct business needs and goals, or does the answer come across primarily as a recitation of the many merits of some off-the-shelf solution, such as a government qualified plan (401k, SEP, IRA, etc.)?
The more the answer revolves around the chosen approach – and the less it centers on the each client’s tax philosophy and Soul Purpose – the less likely it is that your tax preparer has what it takes to serve as your accounting advocate.
What types of non-CPAs do you consult with most frequently to ensure that you are providing your clients optimal advice?
Many tax preparers will be flummoxed by this question. Why would they need to consult anyone else, much less a non-CPA, to help you optimize your tax savings?
A solid accounting advocate will recognize the value of working closely with other experts. A good example is an engineer, who can help owners of commercial buildings be certain that an accurate cost segregation study – identifying all construction-related costs that can be depreciated over a shorter tax life – has been used to prepare the correct tax returns and create an audit trail.
Likewise, a go-it-alone CPA who has not forged a strong working partnership with a top-notch tax attorney, might not understand the importance of determining what type of corporate structure/s are proper and designed to protect business owners both from the taxman and vulnerability to civil claims.
HINT: If you’re a business owner or self-employed professional who has been with the same tax preparer for years, and if you’re still not incorporated, that is a massive red flag that your preparer is likely not a bona fide accounting advocate.
What do you do to remain current on the ever expanding and changing tax code?
Selecting an active and dedicated student of current regulations and tax trends is vital for those seeking an accounting advocate.
I like to work with CPAs who invest heavily in themselves, going well beyond any required continuing education credits by actively participating in peer-to-peer groups, regularly attending professional conferences and workshops, and exhibiting a voracious appetite for reading and knowledge.
A CPA who instructs other CPAs in complex or specialty matters is often a good candidate.
HINT: Ask your preparer which national general business newspapers and magazines – such as Fortune, Forbes, Business Week and The Wall Street Journal – s/he subscribes to. If the answer is none, it’s a strong clue that your preparer is not as committed to staying well informed as you’d want.
* See Killing Sacred Cows, especially p. 249. To order a copy of the New York Times bestselling book for a colleague or family member, phone us at 800-549-4532.
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