Why Tax Planning Is More Important Now than Ever

Our Weekly Tip:

Inflation has become a part of our everyday lives. You can’t escape the term now—it’s increasingly thrown around by journalists, politicians, pundits, and just about everyone else. Costs are going up, and everyone from small business owners to individuals have to figure out how to protect their wealth, make proper adjustments, and work hard to ensure continued success and financial viability.

What Inflation Means for Taxes

There are several direct, tangible effects that inflation may have on your taxes this year and the years to come. Here are just a couple of examples:

·??At the end of 2021, the IRS announced that they were making inflation adjustments for more than 60 tax provisions. One of the most important changes was increasing the standard deduction for married couples from $25,100 to $25,900, for single tax payers from $12,550 to $12,950, and for heads of households from $18,800 to $19,400.

·??Another tangible effect is the increase of the nominal value of assets without a corresponding increase in their real value. For example, if you buy $100,000 worth of a mutual fund in January 2022, and there is 10% inflation throughout the year, it will then be worth $110,000 on January 1, 2023. When adjusted for inflation, the value didn’t change, but if you were to sell it, you would trigger a $10,000 taxable capital gain.

These are just two examples, but the point is that many areas of your finances and taxes, especially for small businesses, will be affected by continued inflation. It’s up to you to understand the changing environment and recognize where you need to make changes or where new opportunities for savings and growth lie.

?Proper Tax Planning Is More Important than Ever

When times change or become tougher, the best thing you can for your personal finances and business finances is to plan as much as possible and get a full picture of your situation. We preach doing tax planning throughout the year because the things that go into tax planning are ultimately critical to the success of your business.

With inflation likely here to stay for the foreseeable future, almost every industry is going to become more volatile and unpredictable as prices of different goods and services fluctuate. There are many areas that are important to plan, but we’re just going to touch on three of them:

1. Planning for major expenses

Understanding what major expenses are coming for your business will help you avoid overspending and getting into trouble with making payments. Think about what expenses may be on the horizon. Will your office equipment likely need replacing in the next 12 months? Are you going to have to expand your supplier base to meet demand? Is it time for a larger office space? Are there any major repairs that will soon be necessary?

To the best of your ability, you should also plan to make major expenses when it is morst advantageous for tax time. For example, if you project you’ll make a lot more money next year, then it might be best to hold off on a major expense until then, so you can write it off that year and take a chunk out of your tax bill.

2. Managing accounts payable

Accounts payable refers to the money that your company owes to its vendors. In other words, they are liabilities that you are obligated to pay. In order to stay on top of accounts payable you should process invoices as soon as they come in, so that they are in your system. You should also keep detailed records, including date received, due date, amount, and necessary contact information. Finally, you should centralize data in a single system, monitor accounts payable weekly, and automate your payment process.

If you put these strategies in place, you and your business will have a better handle on your finances and be better equipped to handle volatile and inflationary periods.

3. Conduct regular cash flow forecasting and have emergency cash on hand

In times like these, you have to be able to make important decisions fast. Regular cash flow forecasting allows you to know how much money is coming in, how much is flowing out, how much cash you have on hand now, and how much cash you can expect to have at the end of the month. You also should consistently add funds to your business savings account, so you can have emergency cash if you experience a sharp drop in business activity.

If you want to talk about your business’s current financial situation, or if you have questions about how to optimize your taxes, schedule a call to speak here.

_________________________________________________________________________

So, last week I got an award for Tax, Business Growth Strategist, and CFO of the Year!

I can’t say thank you enough to the RED (Real Estate Development) Awards community. It was a magical night, and words can’t express how amazing it was. I beyond grateful to be recognized for my company’s efforts and extremely appreciative of my clients in the real estate space.

THANK YOU!!!

_________________________________________________________________________

Check Out My Golden Growers Package

When it comes to growing your business, optimizing your finances and taxes, and developing a predictable system of success, you need an all encompassing program.

Our Golden Growers accounting and tax advisory services package focuses on advanced financial management for your business with a focus on catalyzing growth. This package is designed to replicate the services of an in-house accountant, without the hassle or the expense.

It’s ideal for businesses who need more robust accounting support due to its size or complexity. If that’s you, then let’s talk!

View the Golden Growers details here.?