Financial Planning and Tax Optimization for Business Owners
Building wealth and protecting assets require a clear financial plan that evaluates your current financial situation and predicts what your future finances might look like based on the financial decisions you make. Financial planning is a broad term that includes a variety of information about your financial fitness and future financial goals, such as cash flow, assets, sources of income, investments, and retirement plans. Tax planning falls under the umbrella of financial planning with tax optimization as a crucial piece of tax planning.
Below we offer more in-depth information about financial planning and the roles of tax planning and tax optimization in overall financial plan of a business owner, so you have a better understanding when making decisions about your financial future with the help of your trusted wealth and tax advisor.
Financial Planning for Business Owners
For a small business owner, your finances are like gas in the car. Money keeps your business running. If you manage your cash flow properly, your business can take you to destinations you’ve always dreamed of: more wealth, rapidly scaling your business, early retirement, and more.
With so many exciting possibilities, it may come as a surprise that the majority small business owners have no retirement savings plan in place. Many of these business owners state that they don’t have enough profits to fund their retirement.
What sets a successful small business owner apart is their ability to think ahead and plan accordingly. In business as in life, we can’t predict everything, but sound financial planning puts us in the best position for growth and success over the long term. It helps weave the safety net that will continue to catch you, even if you’re an established entrepreneur with a thriving business.
A solid business plan is critical to the long-term viability of a business, and similar attention should be given to your personal financial plan. A good financial planner will take you through an integrated process that will address the considerations of both.
At a high level, this integrated financial planning process will involve:
– Determining both business and personal goals;
– Assessing business and personal resources, and determining which areas have opportunities for improvement;
– Developing and implementing a strategy to help you achieve your vision — making sure to balance business and personal goals;
– Monitoring the strategy to determine whether you are on track or if adjustments need to be made considering changing business and personal goals.
There are many important business and personal financial planning considerations for you to dive into with your financial planner such as:
– Asset protection;
– Cash flow planning;
– Retirement planning;
– Investment planning;
– Estate planning;
– Risk management;
– Business exit planning;
– Tax planning.
Planning for Taxes
Some small business owners feel confident taking a do-it-yourself approach to tax planning. Others, especially those who are strapped for time, would rather outsource the task to a qualified tax expert. There are some major benefits to the latter.
A tax expert knows the latest tax laws in and out, which were recently overhauled. And they can advise you yearlong—not just at tax time—regarding how much you should be paying in estimated taxes each quarter and which qualifying business expenses are tax deductible.
Finding legitimate deductions is another factor that can greatly reduce your tax liability. The tax code is a complicated beast, and not having a tax plan in place can majorly derail even the most successful small business owners. Ultimately paying more than you legally must, or worse, being slapped with an unexpected tax bill, is a surefire way to disrupt your business growth.
What Is Tax Planning?
Tax planning is a necessary part of financial planning. If you don’t actively plan how to deal with your tax burden, you risk losing any gains you’ve earned, making it difficult, if not impossible to build wealth. Tax planning specifically refers to analyzing and creating actionable steps for your financial future considering your tax burden. Those concerned with financial fitness and building wealth invest ample time in tax planning to ensure they are making tax-efficient decisions about investments and retirement planning. A thorough tax plan reduces current and future tax liability, allowing you to meet your financial goals. Key steps to the tax planning process include:
1. Evaluating Your Tax Liability - You need to have a firm understanding of your current and short-term tax liability before you can make long-term tax planning decisions. The United States has a progressive income tax system with seven different tax brackets. You likely already know that the higher the bracket you are in, the greater your tax liability.
2. Know Common Tax Deductions and Tax Credits - Thorough tax planning requires knowing which tax deductions and credits you can take. It’s impossible for you to know each one and when they apply, which is why tax planning is best done with a trusted financial advisor. Yet, you should be familiar with common situations that will impact your tax liability.
3. Understanding Your Investment Choices - Tax planning includes making choices about where you want to save and invest your money for short-term goals and for long-term retirement planning. Once again, your financial advisor will walk you through your options and discuss which types of investments are the best fit for your financial circumstances, but you should have a broad understanding of different types of investments and accounts and the way your contributions impact your tax liability.
What Is Tax Optimization?
When you have a broad understanding of the elements of tax planning such as your tax liability, deductions, and investment options, you can make informed decisions. Part of making tax planning decisions is optimization, which is the process of reducing or eliminating your tax liability through tax-efficient choices. Financial planners engage in tax optimization for their clients in many ways. You have many choices to make about your financial future. Each choice has a different outcome, some better than others. Tax optimization is the process of making choices that lead to the best outcome for your current and future tax liability.
The way in which someone optimizes their taxes hinges on their individual financial circumstances and tax liability, and often includes a great deal of retirement planning.
Work with a Wealth and Tax Advisor
Financial professionals not only understand tax planning, but they have experience helping clients make choices to optimize their tax liability. One of the best tax optimization strategies that you can use to make sure you are making tax-efficient choices that save you money and grow your wealth is to work with a wealth advisor. Making these decisions without consulting a professional puts you at risk for missing unknown tax deductions.
Contact us for free initial consultation - email: firstname.lastname@example.org or call: 858-349-2298.