The Art Of Tax Planning: How CPAs Add Value Beyond Crunching Numbers
Bree Manay, Managing Partner & CEO at Manay CPA.
When you endure the same routine of filing tax returns and paying taxes every year, you may wonder if you're missing out on an opportunity to save money. Researching feels incomprehensible or inapplicable, especially as a business owner. Investing in a CPA can be a great place to start, and their knowledge of tax planning may hold the key to your financial success.
As licensed by the American Institute of Certified Public Accountants (AICPA), a Certified Public Accountant (CPA) is a professional expert in taxation, accounting and financial consulting. To keep their license and stay informed on changes in their industry, CPAs must also complete continuing professional education requirements and maintain a passing grade on the CPA exam. CPAs also utilize their industry knowledge to serve as tax planners, forecasting financial outcomes beyond the current year's tax return.
A tax preparer is an industry professional specializing in preparing and filing tax returns and forms for individuals and businesses. Their role is based primarily on using their strong understanding of the official tax code of the Internal Revenue Service (IRS) to reduce their clients' overall tax liability and anticipate the largest possible tax refund.
CPAs can provide a wide range of services, including preparing tax returns, conducting audits, managing bookkeeping systems and examining financial records for compliance. CPAs will not only prepare your tax return but can do so with cost-saving strategies in mind, applying specific tax deductions and tax credits to your situation that even the most popular tax preparation software might miss.
For example, a client could reduce their taxable income by purchasing an electric vehicle through their business, enabling them to take advantage of both bonus depreciation and the electric vehicle tax credit.
CPAs can also walk clients through itemizing deductions or deducting individual expenses and losses one by one from total income. Charity donations are a common deductible expense, and most charities tend to remind donors to keep receipts.
Not only can CPAs zoom in on the details of credits and deductions, but they can also zoom out and assess the complete financial picture about your tax situation.
CPAs can prepare and analyze financial statements, balance sheets and cash flow statements for accuracy, risk management and compliance to evaluate a business's current and future health. For example, by helping a client properly forecast their freelance business, that client was then able to make the necessary estimated quarterly tax payments using Form 1040-ES, Estimated Tax for Individuals, and nearly eliminated their tax liability at filing time.
By being proactive and communicating with a CPA before making significant financial decisions, you can ensure that you receive valuable guidance to help you make these decisions as tax-efficient as possible.
Your CPA must understand your complete tax situation when you work together. Consider asking your CPA a few of these tax planning questions:
No matter the size of the business, CPAs can review expenses, capital gains and losses to identify tax deductions; suggest different business structures to avoid double taxation on income; and maintain organized records of revenue and other cash flow and the tax laws affecting them, especially for larger businesses with operations and employees based in multiple states and countries.
If a business earns revenue from more than one state or country, it may be required to pay income taxes, property taxes, sales taxes and any other taxes relevant to the business operations in each operating state and country. If you are a multistate or international business, you want to find a CPA who is especially familiar with national and international business tax laws and can help you fully understand and organize your complex tax situation.
Most CPAs may offer reduced fees for relatively simpler tax returns and conversely may increase their fees for more complex returns. The larger your business is, the more moving pieces there will be in your financial puzzle, and therefore the more complex your tax return will be. If your business needs to file an amended tax return for whatever reason, a CPA may charge an additional fee for the time, research and efforts to verify eligibility and correct the return accordingly.
Some of your expenses may be eligible for tax deductions, but not all. Ensure you keep an organized bookkeeping system for your receipts and expense records throughout the tax year to make this process as smooth as possible come tax season. Take advantage of eligible deductions for your business. A CPA will sit down with you and review your expenses to determine which ones are ultimately deductible on your tax return.
Any CPA will tell you it's unwise to wait until April to start preparing your tax return. Begin gathering and organizing tax documents as early as January, including W-2s and 1099 forms. If you're self-employed or own a business, calculate and pay any estimated quarterly taxes, as these can be deducted on your year-end return.
Be aware of your current filing status, which may change due to significant life events, and understand your business structure for tax classification. Consult a CPA or tax professional to check your eligibility for credits and deductions. Filing early can make tax season far less stressful.
While CPAs don't typically complete the same training as licensed financial advisors, they can still offer guidance on your investments related to your tax situation. They cannot directly manage your investment portfolio. Still, they can recommend how to structure your portfolio best to maximize tax benefits and minimize liabilities and other tax consequences. For businesses, CPAs can weigh in on opportunities and risk factors for mergers and acquisitions, or they can help optimize costs throughout a business restructuring.
You do not have to endure the complexities of taxes alone. CPAs play a strategic role in tax planning, ensuring compliance while maximizing savings and minimizing risk. Investing in a CPA can bring peace of mind during tax season when your tax situation becomes more closely aligned with your financial goals.
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