#1 Delay in Getting Started
Most tax strategies fail because they are delayed in getting started - which often leads to them never getting started.
The time most people think about a tax strategy is usually at the same time they are starting a new business or investment activity.
This is a time when there are a lot of things going on to get the business or investments started. And, at the same time, cash is usually tight. The tax strategy gets put on hold temporarily but the temporary status grows into a permanent status.
There are key parts of a tax strategy that have to be planned out before the business or investing activity starts. When the tax strategy is delayed in getting started, some of the tax saving opportunity could be gone forever.
I hate it when I have to tell a prospective client that we could have reduced their taxes even more had they just started with us sooner.
#2 No Check Up
Most people go to the doctor annually, even if they feel great, to get a check up. This is usually part of a long term strategy for a long and healthy life.
The same needs to happen with a tax strategy.
Many people set up their tax strategy, work diligently with their CPA for the first year or perhaps even first two years, and then let things slide a little bit.
While it's true that some tax strategies can run themselves to some extent over time, it's never a substitute for checking in with your CPA to determine if there is anything that has changed or can be done differently.
After all, even if nothing has changed in your world, the tax world changes on a regular basis.
#3 The Cost v. Benefit
A successful tax strategy is one that creates tax savings that outweigh the costs of creating the tax savings.
Pretty straightforward concept, but sometimes the facts can be deceiving and that causes many tax strategies to fail.
For example, which is better:
- A tax return that costs $750 to have prepared, or
- A tax return that costs $2,500 to have prepared
If both tax returns produce the exact same tax results, then the lower cost tax return is a great deal.
But, what if that $750 tax return calculated a tax liability that is $5,000 more than had it been prepared elsewhere? This is where I see many tax strategies fail.
Have you ever seen the media studies where they take the same tax information to several tax return preparers? The idea is to see if the results are the same. The results are never the same! But, that doesn't necessarily mean any of the tax returns are technically inaccurate.
It's not unusual to have options on how income and deductions can be reported on a tax return and have each option be technically accurate.
This is what is so great about the tax law. Whether it's the U.S. tax law or elsewhere, there can be many options with how items are reported and with the right tax preparer, it can result in maximizing your tax savings.
How do you know if your tax preparer is maximizing your tax savings?
One way to assess your tax preparer is based on how much information your tax preparer wants to know about you and your activities.
Your tax preparer should ask you tons of questions that help you reveal specific details about your situation that impact your taxes.
Asking questions about your situation is not the same as asking you for your tax information (like your W-2 and financials). Every tax preparer will ask you for your tax information.
If your tax preparer isn't probing to better understand your situation, then it is very difficult to uncover the different options available for reporting your income and deductions. The fewer options there are, the more difficult it is to minimize your taxes.
If your tax preparer isn't asking you questions, then that is a strong indicator that they aren't leveraging the options available within the tax law to minimize your taxes.
If you have any questions about this topic, tax law changes, business tips, or how to become a client, please call us at 954-591-8290 or use our Contact form.