Why Understanding Tax Planning is Key to True Wealth?

Here is what we need to get prepared for the end of the year's tax planning.

Dec 27, 2024

What does it mean, and why do we need tax planning?

Summary:

Our company's end-of-year taxes are a hidden treasure trove of opportunities.
Through end-of-year planning, we can permanently alter our taxes with the assistance of our tax counselor or accountant. Not all professionals are equal. Discover how to choose the right ones.
Businesses that lack a proper plan are doomed to fail due to not being profitable. The tax laws are written to make us wealthy when we use them properly and apply them into our businesses’ models from inception to ensure benefits and protection.

Financial advisors get in touch with their clients at this time of year to offer year-end tax planning advice. However, we might be asking ourselves, "Why is preparing so crucial at this time of year?

Reason #1: Alternative Minimum Tax or AMT

The Alternative Minimum Tax, or AMT for short, is imposed on an increasing number of individuals. This is problematic because if we are liable to the AMT, we forfeit a large portion of our deductions. Our real estate and state income taxes, for instance, are no longer deductible. Our investment expenses aren't either.

The good news is that with careful planning at the end of the year, we can avoid or reduce our AMT. For 2024, will we be in the AMT? Then, we might wish to wait until 2025 to make our last anticipated tax payment. The same is true of our investment costs. Don't pay them right away. Use time to our advantage.

Reason #2: Estimated payment penalties are the second reason

A person is most likely paying estimated taxes if he or she receive money from sources other than their usual job. Do a year-end tax prediction now to ensure to have paid enough to avoid penalties. Even if the person is now significantly underpaid, he or she might be able to avoid penalties.

Reason #3: A year with a high or low salary

People are either having a really awful year or an exceptionally excellent one, and that much is true. At the conclusion of the year, what can be done? Tax planning in reverse. We might choose to postpone spending until the following year instead of accelerating them as we often do. If not, we run the risk of losing the deduction or using it during a year with extremely low tax rates. We could also want to accelerate income if at all possible. By doing this, we can prevent the loss of personal exemptions and itemized deductions that are neither refundable nor carryover able.

The year-end checklist

Starting our business planning for the upcoming year toward the end of the year is ideal. Since we are already handling the books, why not do some research to ensure that our company thrives in the upcoming year?

We can start out well with the following checklist

Organize the books.

This may be difficult for some people, but it's easy for others. But before we can do anything else, we must finish this stage, regardless of whether we are a small business owner who can afford a bookkeeper or we are one of those people who cram a glovebox full of receipts.

Recognize our business

Finding out how our company and brands are doing right now is the next item on the list. Our cash flow statement, income statement, and balance sheet should be examined. Find a financial statement on our vital course how to build cash flow with the internet? Turn passive income on.

Our balance sheet will give us an overview of the financial health of our company at a specific moment in time. It displays everything of our possessions, debts, and equity.

Then, by listing our sales and expenses and calculating the profit or loss, our income statement indicates if our company is profitable at a specific moment.

Last but not least, the cash flow statement illustrates where the money has gone by displaying our beginning and ending cash for a specific time period.

After reviewing our cash flow, income, and balance sheets, take a closer look at our company's profit margin, total debt ratio, and current ratio. With our balance sheet in front of us, it won't take long.

Knowing the numbers of our business and personal finances is key to building true wealth. We have analyze financial statements and improve them as we accumulate different assets.

Considering

It's time to take think about our business’ health now that we know where our company stands.

Did our company achieve the goals we had set for the year? Why not? And What can we do different to increase value, win more customers and increase our profits? Don't forget to take notes. When we plan our business for the next year, these will come in handy.

Assessing our present tax tactics is one aspect of this. Seek guidance from an expert, such as a tax attorney or accountant, regarding the best tax tactics for our unique business and personal situation. Not all professionals are made equal. We have to determine which one to pick for our tax strategies. By knowing the business vocabulary we can ensure to choose the right professional for us to keep more of the bottom line or cash flow and pay less in taxes the more we make through sound investing.

If we are smart enough, we can prepare our income tax ourselves, or we can give the necessary paperwork to an accountant. Just make sure our finances are accessible and everything is documented. When it comes to legal educations for our wealth, we have to back it with real evidence. So investing in a great bookkeeper is another team member we want to bring on board early on in our businesses. It will help us monitor our cash flow and confront the reality of our finances.

Ensure the success of our company

And that's all. Planning our business's end-of-year taxes successfully is that easy.

Although it's easy to put off, business planning is crucial, as we all know. We must be discipline enough to get through the boring things in our businesses and investments to ensure long term success. Because as we know a businesses that fail to plan, plan to fail, actually comes to mind.

While there is still time to predict our income and make a lasting impact on our taxes through a little year-end preparation, schedule a meeting with our tax expert within the next week or two. After that, use those savings to make investments to give our positive cash flow more velocity.