Stop Watering Down the Ranch, Focus on Taxes to Cut Costs
August 30, 2020
Times are tough, I get it. As self-employed, small business owners look for ways to keep their cash as long as possible to weather the current pandemic, they are resulting to drastic measures. Cutting expenses is one way to stretch every dollar a little further, but it does not have to sacrifice your customer experience. Reducing your tax payments through proactive planning may be the help you are looking for and not reduce your quality of service for the customer.
As a results focused financial professional, I have spent more meal times than I can count at captive airport restaurants or hotel lobby cafes. The quality of those meals did not have to be the focus, because they were convenient and the customer base is transient. These restaurants can get away with a few shortcuts like watering down the ranch dressing. The customer experience will not be memorable.
What if there was another way to stretch your dollar without sacrificing your customer experience? There is, in fact, I will provide you with four:
Timing – Due to recent changes in regulations, more businesses are now eligible to use the cash basis method of accounting. You can use your control as the business owner to designate what accounting period you are going to recognize income and expenses. You are not rewriting the Gregorian calendar, but you are managing your income and scheduling your tax liability.
Shifting – There are multiple tax rates applicable to various types of income. Why not shift some of your income to a person, company or place that has a more favorable tax rate or applicable structure than your current situation? Some of these strategies keep the money inside your household or family while reducing your taxes.
Code – The Internal Revenue Code and Treasury Regulations provide business owners with many opportunities to pay less tax; however, you need to know where to look. It would be nice for the government to volunteer all available deductions and legal strategies to you, but then how would they foster a good work ethic and reward those who do their homework? For a real page burner, start with Section 162.
Products – Ever use a piece of duct tape for something other than repairing your HVAC system? I thought so, and the same can be said for certain investment structures, insurance products and retirement accounts. Receiving cash from certain sources is more tax efficient than others. When you know what you are trying to accomplish, you may find a fantastic product that achieves what you set out to do while paying less tax doing it.
When you are looking to cut costs, please consider your customer and take another look at your tax line. Leave the watered down condiments for the other guys. Stay memorable.
To learn more legal, tax-saving strategies for business owners, or get help with an IRS tax problem, contact me at (360) 474-5892 or e-mail me at tate@ensigncpa.com.