How to Design Tax Planning Strategies with Your CPA

As the old saying goes, taxes are one of life’s few certainties. At the same time, implementing smart, planned out tax strategies can help you to drastically reduce your tax liabilities. If you feel like you’re paying more than you should be, or if you’re just looking for ways to bring your tax liability down, we can help.

The key is to be proactive now so you can avoid being reactive later. All too often, people panic when they see how much they owe simply because they didn’t prepare in advance. It’s never too soon to start talking to your CPA about tax planning strategies so you’re not hit with any unpleasant surprises when tax season rolls around.

Are You Using the Right CPA?

While your CPA may be there ready to help you out when it’s time to file your taxes, are they working with you year-round? Strategic tax planning often requires more dedication and commitment than most CPAs are willing to offer so you may be missing out on potential opportunities that could be helping you to keep more of your hard-earned money.

Here are some of the most common reasons why many accountants aren’t delivering the tax strategies you should be using:

  • Many accountants are focused more on bookkeeping than strategic planning. Rather than focusing on the future, they’re more interested in documenting the past. Some accountants do offer advice on planning for the future, but many aren’t familiar enough with the tax code to offer in-depth information pertinent to your unique situation.
  • Some accountants take an “if it’s not broke, don’t fix it” approach, and often are not willing to adjust their strategies for each individual client. A good accountant should factor in your spending habits and lifestyle as well as your short and long-term goals when planning tax strategies.
  • Finally, some accountants are afraid of making an error that gets them flagged by the IRS. Of course, proceeding with caution is always prudent, but too much caution can lead to missed opportunities. The tax code is filled with ways to improve your tax situation 100% legally. The simple truth is that many accountants are scared to take advantage of tax planning strategies that are readily available because they’re not well-versed enough in the tax code to proceed with absolute confidence — so they don’t.

If any of those critical errors remind you of your CPA, it may be time to find a new one. After all, you’re paying for a professional who should be doing everything possible to alleviate your financial burdens. If they’re not incorporating year-round tax strategies focused on both short and long-term tax liability reduction, you’re missing out on huge savings opportunities.

Woman Writes in Journal at Desk

Determine Your Tax Goals

In order to formulate a comprehensive plan, it’s important that you and your CPA discover and acknowledge your goals. In most cases, a taxpayer’s goals are simply to pay fewer taxes, but that’s not always the case. If you’re not sure what your goals are, or if you’re feeling overwhelmed in any way, a good CPA can analyze your situation and provide guidance.

Here are some of the most common goals when hiring a CPA:

  • Reduce your tax rate with tax planning strategies
  • Lower the amount of taxable income
  • Gain more control over when taxes must be paid
  • Claim all tax credits available to you (or your business)
  • Avoid preparation errors
  • Take advantage of any legal ‘loopholes’

Tax Strategies and Tips

Now that you have a better understanding of what your CPA should be helping you to achieve, it’s time to learn about ways to relieve your tax burdens. Here are some helpful tips to put you on the right course, but be sure to speak with your CPA about strategies catered specifically to your situation.

1. Be Mindful of Taxes All Year

Once you’ve acknowledged what you hope to achieve, you and your CPA can start taking steps to get there. All too often, individuals and business owners simply view taxes as a necessary evil that comes around every year, ignoring tax strategies for the other 11 months of the year. Instead, it’s much smarter to keep taxes in mind year round so you’re prepared when April comes.

For example, say you work from home. You can deduct your home office, work-related equipment, travel expenses, and so much more. Throughout the year, whenever you’re spending money on anything work-related, you should be writing them down and saving receipts. That way, when tax season comes around, you and your CPA are ready.

2. Reduce Taxable Income

One of the most effective tax planning strategies is simply taking steps to reduce your income. After all, the higher your income is, the more you pay in taxes, and vice-versa. Of course, taking a pay cut isn’t an ideal strategy, so you want to find tax strategies that allow you to reduce your taxable income by moving it around.

If it’s an option, one of the best ways to reduce your taxable income is to contribute to a 401(k) or a similar retirement plan. That way you still technically own the money, but it’s not taxed. There are other income adjustments available too such as IRA contributions, student loans, and more.

Person Looks at Receipts While Planning Tax Strategies

3. Deduct Expenses

Tax deductions are another way to reduce your tax liabilities. When it comes to deduction-based tax strategies, the top three deductions are gifts to charity, mortgage interest, and state taxes. Throughout the year, you can also keep track of business-related expenses, investment-related expenses, health care, personal property taxes, and more.

You may be very surprised by how many things can be deducted at the end of the year. Your CPA can analyze your spending and determine the best approach. As a general rule of thumb, document all your purchases and save the receipts. When tax season comes, your CPA can sort through everything and determine which purchases qualify for deductions.

4. Use Tax Credits

You may qualify for tax credits that further reduce your tax liability. While this is one of the tax strategies that doesn’t apply to everyone, you may qualify for some tax credits that you didn’t know about. For example, if you earn less than a certain amount, you may qualify for the Earned Income Credit.

You can also enjoy some substantial tax credits for adopting children or for college expenses. Of course, adopting a child to save money on your taxes isn’t realistic, but if you have adopted a child, you should look into your options. If you’ve been considering taking college courses, you may find that the tax credits give you that extra push of motivation to follow through.

5. Withhold More from Your Paychecks

One of the easiest but often overlooked tax strategies is increasing your withholdings. Increasing your withholdings on every paycheck doesn’t necessarily save you money, but it does spread your tax liability out more, making tax season less daunting. If you find yourself owing money every year, talk to your accountant about increasing your withholdings.

6. Avoid Audits

If your CPA is using tax planning strategies, they should be 100% positive that everything they do is legal. However, if you’re handling your taxes on your own, you may be at risk of getting audited by the IRS if you’re not careful. Here are the four most common areas of focus when the IRS is investigating fraudulent tax filings:

  • Accounting irregularities and discrepancies
  • Failure to report large amounts of income
  • Inaccurate or false deductions
  • Improper allocation of income to someone in a lower tax bracket (such as a child)

7. Hire a Trusted CPA

When it comes down to it, the most critical of all of the tax strategies is simply working with the right CPA. Your accountant should have the experience, technical knowledge, and the resources to ensure that you’re paying as little as possible. Never underestimate the true value of a good CPA — they’re an investment that usually pays for itself many times over.

Contact Us Today

We’ve only scratched the surface here. Every person’s situation is unique, and that’s why a custom-tailored approach to taxes is so important. The expert team at Shahen Derderian & Associates is eager to work alongside you to find tax strategies that save you money. We’ve worked with a long, diverse list of clients, and our exemplary results speak for themselves.

Our team is standing by to answer any questions you may have and provide a quote. You can call us or contact us online and we’ll email you back shortly. Get in touch now, and see what a difference our tax planning strategies can make when it’s time to prepare your taxes.

Leave a Reply

You must be logged in to post a comment.