5 Questions for Your Mid-Year Tax Planning

by : Tmwheelwright



When I coach clients on their tax strategy to legally reduce their taxes, many of the strategies require monitoring throughout the year. The monitoring serves two primary purposes:

#1 To Monitor the Numbers

Many tax strategies are based on income and expenses being at certain levels. It is not uncommon for these numbers to change during the year. Certain changes can impact the effectiveness of the tax strategy so it is critical to know if the numbers change so changes can be made to the tax strategy.

#2 To Monitor the Documentation

Part of the tax coaching I do with clients includes coaching them on how to document the transactions, the activity, the income and expenses that impact their tax strategy. Proper documentation increases the accuracy of the information my clients provide to me to do tax planning and prepare their tax returns. It also provides the support the IRS would want to see if my client is audited. Part of my mid-year planning process includes checking in with my clients on how their documentation is coming along.

What is your system to make sure you monitor your taxes throughout the year?

If you don't have a system to monitor your taxes throughout the year, you need one and here is why:

Have you ever met with a CPA or tax preparer and been told you could have done something about a tax problem if only you had acted before the end of the year?

And while year end tax planning has its place in a tax strategy, often times there is simply not enough time at the end of the year to get the best tax results. That's why mid-year tax planning is so important.

I have a system in place to make sure this monitoring happens for my clients. Part of that system includes a custom checklist designed for each specific client. Here are the top 5 questions from that checklist.

** Question #1 **

Do you need to change how your entity or entities are taxed?

Sometimes an entity is formed with the strategy that once that entity hits a certain target income, then how that entity is taxed needs to change. This can be a very costly tax mistake if it is missed!

** Question #2 **

Do you need to add an entity or restructure how your entities are owned?

Knowing the right time and the right entity for your tax strategy can often save as much as $10,000 per year in taxes.

** Question #3 **

Are your salary and distribution amounts from your S Corporation optimal?

S Corporations are the most popular entity for businesses. The mistake I see most often is S Corporation owners not balancing the amount the S Corporation pays them as salary versus distributions in order to reduce their taxes and their audit risk.

** Question #4 **

Is your accounting up to date?

If your accounting is not up to date through at least the first quarter of 2008 (March 2008), then it is not up to date and you need to take action now! Accounting is the heart of every tax strategy. Without current accounting, it is impossible to determine the tax strategies that will generate the most tax savings or if anything needs to be adjusted during the year to protect the tax savings.

** Question #5 **

Are your travel, meals and entertainment expenses properly documented?

TravelFeature Articles, meals and entertainment are among the most heavily scrutinized expenses. This makes proper documentation of these expenses a key part of every tax strategy.