Many small business owners assume that handling their finances themselves will save them money. However, tax codes can be a tangle, and keeping up with any legal changes can be challenging, especially since your tax situation changes depending on whether you're a sole proprietor, a limited company, or a corporation.
While learning the fundamentals of bookkeeping, cash flow management, and tax compliance is beneficial, employing a CPA or tax advisor to manage your finances has numerous benefits. Allowing a professional to handle your books frees up time for you to focus on servicing your clients and implementing growth strategies.
What is a Tax Advisor?
A tax advisor is a fiscal expert with extensive training and a thorough understanding of tax administration and legislation. The services of a tax advisor are generally employed to minimize taxes payable while keeping consistent with the law in intricate financial circumstances.
A tax advisor's counsel and services will vary based on the taxpayer's position. A person planning retirement will receive different advice than a business owner looking to open a store. Similarly, a property investor will likely have different tax requirements than a retailer. Certified Public Accountants (CPAs), tax attorneys, and some financial consultants are some examples of tax advisors.
Because tax advisors are competent in tax law and IRS requirements, businesses may hire one to represent them before courts and tax authorities to settle tax-related issues.
Tax advisors are well-versed in the laws that govern personal and business taxes, and they can help clients comply with federal, state, and local tax regulations. To be effective when providing advice on current tax matters, advisors must stay updated on the newest state and federal tax obligations.
Tax advisors can be outsourced or be domiciled within your business. In either case, they are entrusted with finding efficient techniques to legally lower your tax burden, computing taxes on various investment portfolios, and determining the appropriate deductions and credits, among other things. They can also help you draft and file tax returns.
The IRS regulates but does not license tax consultants. Tax advisors' obligations and ethical requirements are outlined in Treasury Department Circular No. 230, Reg. 10.33(a).
How a Tax Advisor Can Help you Save
If you want to save millions over the course of your business, invest in a good tax advisor. Tax advisors can save you in the following ways:
1. Avoiding Tax Penalties
Your tax advisor or CPA could be a valuable resource when it comes to keeping abreast of the latest tax requirements for small businesses. They can also offer expert advice on how to get the most out of your benefits and pay the least amount of taxes each year. Don't underestimate the cost benefits of employing someone to accurately complete and file your tax returns on time. Small businesses that fail to file their taxes properly, delay, or fail at all – face steep fines; the longer you delay filing, the more back charges you'll pay and the more likely you'll face further penalties.
An already struggling enterprise may be unable to pay a tax fine and be forced to close its doors. If your small business is ever audited, having a tax advisor on board can assure you that you will not be penalized for errors or omissions.
2. Investing without Adverse Tax Implications
Advisors should be mindful of and attentive to your tax status, but concerns might be difficult to spot if you don't know where to look. For instance, if a client does not disclose all of their accounts, an advisor will have no idea how those accounts are invested or, more crucially, what the profit or loss landscape may disclose.
An advisor who is well-versed in tax strategy will inquire about other accounts or holdings to avoid erroneously realizing gains or losses, resulting in an unforeseen tax bill. Simply put, a tax-experienced advisor has the aptitude to continually look for ways to save money on taxes. They are unlikely to lose such instincts even if they change occupations. When you solely rely on financial advisors who serve on the commission in most cases, you might lose out on this area.
3. Managing the Tax Impact of Gains
You've probably faced this situation before: your financial advisor urges you to take some profits. Suddenly, you've been slapped with an unexpected tax bill, and your cash flow bears the brunt.
Your Tax advisor, on the other hand, is constantly exploring methods to reduce your current-year taxes. Based on long-term cash flow talks during the investment planning process, your tax advisor will partner with your financial advisor to look for appropriate ways to grow and protect your business.
To keep the gains, and handle the potential tax obligation, tax advisors can employ techniques such as tax-loss harvesting. Also, by leveraging tax planning in your investments, your tax advisor can help you smooth out any adverse circumstances and reduce shocks.
Your accountant can also act as an advisor because they have complete access to all of your financial data, making it easier for them to evaluate and offer recommendations about your financial condition.
Most tax advisors are CPAs, tax attorneys, or other professionals versed in financial management. The clients of tax advisors benefit from their continuous learning and polishing as auditors, accountants, and tax attorneys, meaning that they can double in other tasks such as payroll maintenance, especially as they are available all through.
Your small business doesn't have to run into losses because it wrongly anticipated its gains or failed to file its tax returns on time. Straightforward as it seems, correctly aligning your business investments with tax obligations can be a more involved process. You are better off placing your business in the hands of an experienced tax professional. Not only will you make wise investment decisions, but you will also stay ahead of the pack as you focus all your energy on serving your clients and expanding your business. Reach out to us today at Schwartz & Associates, and we will chart a path for your business.
Rich SchwartzRich Schwartz and his CPA firm serve clients throughout Southern New Jersey. Rich has experience working with businesses providing trusted advice, financial solutions, and guidance to help them manage cash flow, plan for the future, and grow their businesses.
Rich has worked with hundreds of businesses across a variety of industries including medical, professional services, financial services, retail, manufacturing, distribution, and real estate. He has the ability to understand the unique challenges facing small business owners and the experience to provide the right solutions.