The Truth About Tax Savings and Strategies
Oct 18, 2024In a recent episode of the "Keep What You Earn" podcast, Shannon shared valuable insights into the complex world of tax savings and strategies. As a seasoned CPA and business owner, Shannon's experience informs her evolving perspective on effective tax planning for entrepreneurs.
A primary theme Shannon discussed is the need for a mindset shift when it comes to tax savings. Entrepreneurs often look for quick fixes or hacks to minimize their tax burdens. However, Shannon emphasized that anything worthwhile in business—anything that’s long-lasting—doesn’t come from shortcuts. While shortcuts may provide temporary relief, they often lack sustainability. "You may get a result from these shortcuts, but are they long-lasting? Probably not," Shannon pointed out.
One significant pain point Shannon identified is the element of surprise associated with tax bills. Many entrepreneurs find themselves scrambling to come up with money they didn’t anticipate owing. Shannon suggests a proactive approach: conducting a mock tax return around August or September to gauge potential tax liability. “Give yourself an extra three months to plan and save,” she urged. This approach helps avoid the panic of a surprise bill and allows for more effective financial management.
While Shannon is a proponent of tax planning, she warns against blindly implementing strategies without fully understanding their implications. A common example she cited is hiring your kids. While it sounds appealing to save on taxes by employing your children, it involves setting up payroll systems, creating job descriptions, and maintaining proper records. "For $2,800 a year... could you make more instead of save more?" Shannon challenges entrepreneurs to weigh the costs in time and energy.
Interestingly, Shannon noted that many tax-saving strategies are more effective at the individual level rather than the business level. Areas like real estate and capital gains often provide the most abundant opportunities for tax savings. For business owners, strategies mainly involve maximizing expense deductions and making structural changes like adopting S Corporation status.
“Maximize the number of deductions, but don’t spend any new money you weren't already going to spend,” Shannon advised. Entrepreneurs should look at their current personal expenses and see if they can justify them as business-related. She gave an example of a fitness instructor using streaming services for professional development. If you can make a solid case for these expenses being business-related, you might be able to claim them, but it requires diligent record-keeping.
Shannon emphasized the balance between saving and earning. While saving on taxes is important, it should not come at the expense of business growth. She questioned the efficacy of spending time on minor tax-saving strategies compared to using that time to generate more revenue. “Could I make more instead of save more?” she asked, encouraging entrepreneurs to prioritize activities that drive revenue.
Shannon also highlighted the importance of structural changes like forming an S Corporation for significant tax advantages. Additionally, she mentioned that your location can affect your tax situation but cautioned against moving solely for tax benefits.
In conclusion, Shannon’s insights remind us that while tax savings are important, they should not overshadow the primary goal of growing a profitable business. Entrepreneurs should be proactive in their tax planning to avoid surprises and carefully evaluate whether the time and effort spent on tax strategies are truly worth it. As Shannon aptly put it, “Prioritize earning, and then focus on tax savings once you have a cash-flowing, high-customer-value business.”
For more insightful discussions on financial strategies and growing your business, be sure to tune into the "Keep What You Earn" podcast, where Shannon Weinstein continues to share her wealth of knowledge and experience.
If you're eager to dive deeper into optimizing your financial strategies, consider booking a power session with Shannon. In these sessions, you’ll navigate the financial scorecard of your business and find ways to boost profitability and cash flow. Check the podcast show notes for more details.
Remember, the path to financial health involves both smart planning and strategic growth. Keep earning and keep saving!
What you'll hear in this episode:
04:27 Plan ahead to avoid surprise tax bills.
08:54 $2,800 tax-saving requires setting up payroll.
10:28 Invest time wisely; structural changes often valuable.
15:28 Assess risk tolerance; prioritize energy and time.
18:17 Optimize business structure and activities for profit.
If you like this episode, check out:
Is Hiring A Tax Strategist For You?
Simple S Corp Salary Guide for Beginners
Why You Want to Avoid Tax Extensions
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The information contained in this podcast is intended for educational purposes only and is not individual tax advice. Please consult a qualified professional before implementing anything you learn.
