This tax season I find myself speaking to a record number of business owners that are flummoxed to discover that they owe so much in 2016 taxes. What they keep asking is...... 1 – How Did I End Up Owing Money?2016 Was Better Than Expected There is no question that 2016 was part of the economic upswing that continues to get stronger with each passing quarter. With income flowing again, many owners were forced to make capital investments in their businesses - investments that in some cases were years overdue. As a result, even though 2016 was more profitable, it didn't feel that way to many owners...because those owners had to reinvest profits into capital projects for their businesses instead of placing those dollars into their personal pockets. Tax Rates Increasing Federal income tax rates have increased and frustratingly, owners now have possible exposure to the new Medicare tax or the tax on "net investment income." But wait, I'm being negative. If you were fortunate enough to die in 2016, you could shelter nearly $11M in assets from the estate tax. Feel better now? 2 – Why Didn’t My CPA Warn Me?Many owners are asking themselves "Why did my CPA let me down?" or "Why didn’t he/she prepare me for this?" Fair questions, but let's get real. Your CPA only knows the information you provide him and most of us don't do our CPAs any favors. We just don’t take the time necessary to discuss an overall tax strategy with our CPAs. For example, I've seen a situation where a CPA was not informed that a client purchased a new multi-million dollar building. Additionally, in our cost segregation to help clients gain bigger deductions, I've seen CPAs surprised to discover that clients spent hundreds of thousands of dollars on building renovations that weren't shared with their CPA. Most owners are guilty running their business.....and not paying attention to special tax advantages. As business owners, we make decisions today that appear good for the company and good for our bottom line, with little regard to how it affects our tax situation. Rarely does it cross our minds to call our CPA in the middle of summer to review something for next April. 3 – What Can I Do About It?First, be human and get mad about it. You can pound your fist and complain about the government. It's cathartic. Of course, it doesn't provide any tax relief either, so that means something else needs to happen. For some, you've already bitten the bullet and written the check to the IRS. For others, you're planning to either file an extension or to file without making a payment and are going to wait for the dreaded IRS bill to arrive. In either instance, the good news is that just because tax day is upon us doesn’t mean your numbers are written in stone. There are over $200B in Federal Tax Incentives allocated to small and mid sized businesses to help offset your liability. AuthorBruce Wing is the principal of Strategic Wealth, LLC, a financial planning and business consulting firm located on the north side of Atlanta, GA.
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December 2019
Bruce WingEntrepreneur, financial guy, husband and father of two great kids. |