The Senate just passed a bill allocating nearly $80 billion to the IRS over the next ten years. Along with the funding comes 87,000 proposed new auditors. And with them, over a million more audits per year.
Does the sound of an IRS audit make you cringe? If so, you’re not alone. Recent surveys have shown that 1 in 4 Americans are afraid of being audited.
Especially for businesses, an error on your tax return could have expensive consequences. For that reason, many companies use a tax planning service.
Tax planning services do more than file your taxes for you. Their involvement can both protect you and save you money. Here’s our guide to exactly what they do, and the benefits of working with one.
What is a Tax Planning Service?
Simply put, working with a tax planning service outsources your tax return. But, the best services save you money while they do it.
To begin with, tax planning teams will assess your business’ finances. They will then look for ways to help you pay less tax. This could be anything from changing your legal status to finding more deductions.
Then, they help you plan for the future. They analyze forecasts to help you make the best tax decisions throughout the year. And you can always get in touch with them to ask tax questions, especially if your business is changing.
What do these benefits like look practically? Here are the best benefits of working with professionals to decide on your tax planning strategy.
How many hours do you think you could save by working with a tax planning service? That depends on the size of your business and how thoroughly you currently do your taxes.
The total amount of time small businesses spend filing taxes has been estimated at 2.5 billion hours per year. Plus, even a quick tax return is only made possible by hours and hours of good bookkeeping beforehand. However large your piece of that pie is, it can be cut dramatically by a tax planning service.
That’s because they take on all the work for you. However many hours you used to spend a year preparing for tax season, you can now reallocate to working on your business!
The goal of a tax planning service is not just to do your taxes for you! The professionals are there to do your taxes better than you. That’s because they have the expertise to save you money in the process.
How is this possible?
Taxes for businesses are complex, even for small one-man operations. The legal way you set up your business affects the taxes you owe and which deductions you qualify for. A tax planning service helps you go back to these basics to see if there are changes that could save you money.
Throughout the tax filing process, there are other ways to save money that you may not spot on your own. The tax experts can help you find the breaks you qualify for to save you even more money. And they can help you plan your biggest business purchases for when they will be most beneficial for tax deductions, saving you even more.
Here are six specific ways these services can help you pay less tax, and keep more of your hard-earned cash!
1. Avoid Expensive Mistakes
Any mistake on your taxes can be an expensive mistake.
If you underpay or underreport your earnings on your tax return, an IRS audit may find you out. Then, you’ll have huge bills to pay to make up for the errors.
This is fair when people intentionally misreport their income. But it’s stressful even for people who submit an honest return. Knowing that any accidental mistake can come back to bite them is overwhelming.
On the other hand, not everyone claims the tax deduction and breaks they’re entitled to. This can add up to overpaying thousands on a tax bill. That money could’ve been invested back into your business!
Working with a tax planning service avoids all of these problems. Your return will be as accurate as possible, without these costly missteps.
2. Collect Missed Tax Deductions and Credits
When you do your business tax return yourself, it’s easy to miss expense claims that you’re entitled to. When you work with tax advisors, their team makes sure you claim every deduction possible. They may even be able to claim money back for you from previous years.
Depending on your situation, it may be possible to claim for past expenses that you missed. This is only possible with the professionals on your side!
3. Solve Previous Tax Issues
Are you in the middle of dealing with taxation issues from previous years? As we said, it might be that you didn’t claim tax deductions and credits you were entitled to.
The reverse is even more problematic. Did you claim something you shouldn’t have? Did you underreport or underpay your tax?
In these situations, hiring a tax planning service can help. Especially when resolving issues from previous years, it’s best to let the experts handle it.
They are in the best position to protect you legally from any fallout from incorrect tax returns. And working with them makes sure you don’t make those mistakes again.
4. Improve Your Business Structure
Every business is structured in a different way. But for tax purposes, a business’ legal state is the most important.
Your business will currently fall under one of these categories:
- Sole proprietorship
- Limited liability company (LLC)
The first three of these are the usual categories small businesses fall under. Whichever one you chose when you established your business determines how your taxes work.
For example, sole proprietorships and LLCs are both taxed the same way as standard. This default tax status is called pass-through taxation. However, LLCs have more tax flexibility.
If they chose to, they can adopt the taxation methods of a corporation. Depending on how you structure your business, this can save you money on your tax bill.
For example, dividends are usually taxed lower than the income tax rate. Retained income is also taxed differently for corporations. Corporations additionally have access to more tax deductions and credits.
Basically, changing your business from a sole proprietorship to an LLC can end up saving you lots of money!
But changing your business structure, tax status, and establishing dividends may seem overwhelming. That’s why you bring in the professionals!
Tax planning services can evaluate how much you would save by changing your business. Then, they can guide you through all the necessary paperwork.
And of course, they’re the ones handling your taxes for you. So you don’t have to worry that you’ll make mistakes with all of the taxation changes. They deal with everything.
5. Create Business Tax Projections
Financial projections are key to the success of any business. In fact, cash flow issues are one of the top reasons that businesses fail. Keeping an eye on your finances is the best way to make sure you’re staying afloat.
Where many businesses get caught out is forgetting to set aside money for their tax bill. Even businesses preparing for tax season may under or overestimate what they owe. In doing so, they’re either left with a bill they can’t afford, or they deprived themselves of money they could’ve invested in the business each month.
That’s why business tax projections are just as important as any financial projections. Having an accurate understanding of what you will owe and when saves all the guesswork.
With uncertainty out of the picture, businesses can have a better grasp on their finances. And that’s not just during tax season, but all year round. They can save what they need to, when they need to.
The most accurate business tax projections come from a tax planning service. Their expert evaluation of your income and expenses will give you the most accurate tax estimate possible. Under their guidance, businesses can budget accurately all year round.
6. Plan Ahead
The tax projections these services provide you with can inform when and how you spend. With their guidance, you can make your biggest purchases at the times they will save you the most money.
But, how can spending money save it, too?
As you know, businesses are entitled to claim expenses off their tax returns. Working with tax experts makes sure you claim every tax deduction possible. They can also tell you the best time to pay out for these expenses.
For example, your business might need a new expensive piece of equipment. If you’re debating the purchase around tax season, it may save you more money to buy it in one tax year than the other. Tax advisors show you when the purchase will save you the most money.
This isn’t a one-time benefit. With a tax planning service, you can plan ahead for when to make regular large purchases.
There may be a large maintenance expense that you pay out once or twice a year. By working with your tax advisors, you can plan in advance when it should take place each year. By doing so, you are regularly saving money and investing in your business at the same time.
Help With an IRS Audit
As we said at the outset, audits can be an unpleasant experience. Even if you know your tax return was flawless, we’d all rather avoid them.
There are three ways that working with a tax planning service can help you with audits. To avoid them, prepare for them, and endure them peacefully!
Avoid an IRS Audit
IRS audits typically happen because your tax return was flagged to be double-checked. This could happen for a variety of reasons, including:
- Incomplete tax returns
- Incorrect reporting of earnings
- Incorrect claiming of tax deductions and credits
Essentially, anything that seems wrong will flag your return. In that case, IRS auditors will assess your tax returns. If there was a mistake, it could cost you dearly.
By working with a tax planning service, you can avoid this happening altogether. With the professionals working on your return, the chances of a mistake getting through are close to zero! That means you can go about your businesses undisturbed by auditors.
Be Prepared for an IRS Audit
Even if your tax return is perfect and not suspicious at all, you may still be chosen for an audit. The IRS chooses to carry out random audits for two main reasons:
- To encourage compliance and deter cheating on taxes
- To close the gap between what they’re owed and what they’ve received across the country
If you become the subject of a random audit, having a tax planning service can help. Because of them, you know that your tax record is accurate and up to date. Therefore, even the most unexpected audit shouldn’t incur any cost to you.
Maintain In-Office Privacy During an Audit
It may seem counterintuitive that sharing your business finances gets you more privacy. But in the case of audits, it’s very true.
When the IRS audit a company, they visit their place of business to collect the information they need. This can be stressful and uncomfortable, not to mention disruptive.
But if you’re represented by a tax planning service, that won’t happen. Instead, auditors will visit your representative’s place of work to gather what they need.
Your business can carry on as usual, undisturbed by the audit itself. Plus, they’ll be handling the audit for you!
Stay Up to Date with Tax Law Changes
Making sure you’re compliant with regularly changing tax laws can be a huge stressor.
On the one hand, an updated tax law could entitle you to new tax deductions and credits. If you don’t keep up with the new laws, you could overpay on your tax return without realizing it.
The reverse is also true – not staying up to date could mean you’re underpaying. The latest laws on what businesses owe could have changed in a way that costs you more. If you haven’t stayed up to date, this could result in problems with the IRS.
For example, some tax laws were put into place only for the last year or two to help people cope during the pandemic.
Do you know if and when these tax breaks are ending? Do you know how to adjust?
The other problem is that each state’s tax laws differ. Even within a state, laws may change from city to city.
This is one thing to keep up with if you work in a single location. But what about businesses spread across multiple cities or even state lines? They’ll have a hard time keeping on top of every area’s tax laws and changes.
Instead of worrying about this yourself, hand the problem over to a tax planning service. It’s their job to keep up to date with any tax law changes. And their knowledge can help you save the money you’ve worked so hard for!
Improve Your Cash Flow
How can a tax planning service help you improve your cash flow?
To complete your tax returns, the firm needs to review your financial information. They’ll analyze all your income and expenditure. Having dealt with hundreds of companies, they might be able to spot a way to improve your cash flow that you hadn’t.
Of course, as the business owner, you have access to this information already. But you might appreciate a fresh pair of eyes pointing out where you can save and where you can spend.
In this way, tax planning services can act as financial advisors. Even outside of tax season, they are there to help you make the best use of your money. They want you to succeed, and might be able to point out a trick you’ve missed.
Advice Outside of Preparing for Tax Season
When preparing for tax season, accountants country-wide get swamped with calls and questions. But other than that, you’ll likely not get in touch with one for the daily running of your business.
That’s where a tax planning service is different. While they are a one-stop shop for all your tax planning needs, they can actually help you all year round.
As we explained, their financial planning covers more than just how to fill in your tax return. It helps you decide when to make big purchases throughout the year. And they help you to manage your finances each quarter for the lowest tax return.
Because of their familiarity with your business finances, they’re the best people to answer your questions. Whatever changes you’re planning in your business, their year-round advice will be the most beneficial for your business.
Peace of Mind
Working with a tax planning service affords you the ultimate peace of mind. That’s because you know:
- You’ve saved money on your taxes
- Your tax return is accurate
- You’ve complied with the most current tax laws
- You’re prepared for an audit
- You made big purchases at the right time of year
- You’ve planned for the future
What does that mean for your day-to-day life? You get to focus on your business, instead of worrying that you’ve made a mistake. You can give your work your full attention, knowing all your business taxes are in good hands.
Are Tax Planning Services Worth It?
Some may reason that although hiring tax advisors saves you money, you have to spend just as much to work with them. Therefore, in a basic cost-benefit analysis, they’re not a worthwhile investment.
This isn’t true. For some clients, the money they save with an optimized tax return is more than the cost of hiring a tax planning service. It literally earns them money.
Of course, this isn’t the case for every business. For those businesses, is it still worthwhile?
Definitely! Above all, a tax planning service is a protection.
It protects you from the liability you incur if you make tax mistakes. Whatever money you save by doing your business taxes alone could all be lost if your tax return isn’t accurate.
It also helps you plan for the future. You know exactly what tax bills are coming your way, and how you can budget for them. You also have a helping hand to evaluate the implications of any business decision you make.
Besides the peace of mind this buys you, it’s common sense that this is a good investment. Every business runs smoother when it has a tax planning service in its corner.
If these sound like benefits you’d like to enjoy, you need to get in touch with a tax planning service.
How to Choose Your Tax Planning Service
Clearly, a tax planning service does more than save you time through outsourcing. They make your returns more accurate, save money, and help you plan for the future.
But how can you choose which firm to work with? Go for a firm with a long track record of success and happy clients.
At Bennet Financials, we’ve been helping businesses for over 35 years. Our expertise ensures your returns are as accurate as possible, giving you the time and energy to focus on your business.
Book a free consultation with us today to see how we can help your business save.