Tax planning can prevent you from overpaying taxes, but it has to be done before the year is over. Good tax planning takes a proactive approach, and bad tax planning includes either not planning, breaking the law, or taking it upon yourself without using a competent tax professional.
Without planning you may not be able to take advantage of the ever-changing tax laws. When we work with business clients throughout the year we are able to understand their business finances much better. By doing so we can suggest proactive ways to reduce taxes, run their businesses better, and help with cash flow and profitability. For example, if your business is doing well, it makes sense to review the current structure to make sure that it is tax-efficient. Our services are designed to save much more in taxes and produce more value than our fees.
A bad strategy is to pay for personal expenses through the business and take a deduction for it. Personal expenses should be kept separate and paid for personally. An IRS auditor can easily spot this, assess more taxes, and even assess penalties of 20% or more. And of course, underreporting your income is not wise either and may result in criminal prosecution.
I know what I know and know what I don’t know. I use other qualified professionals when it comes to legal matters, insurance, and healthcare. If you take it upon yourself to do your own tax planning, you usually end up unknowingly paying more in taxes than the cost of using a professional. The key is to make certain that you choose the right professional and ask a lot of questions.