Tax planning is a fundamental step in financial growth and stability. Every taxpayer is different with their own set of unique financial needs, goals and challenges that require a customized strategy. One concrete way to take a step toward achieving your financial goals is to leverage an expert tax advisor. You may only associate tax advisors with tax preparation, but in reality they can be so much more for you and your business.
Whether you have compliance questions, want to take out a business loan, or want to know whether you should purchase a new computer for the office, your tax consultant can provide valuable insight based on your current finances, business needs, and financial goals.
Digital marketers in particular can really benefit from a good tax strategy because a qualified tax advisor can tailor ways to increase profit, save time, and maximize deductions by implementing key operational changes to how accounting and tax is handled. To help you best screen tax advisors during tax season and build a longer-term relationship that will allow you to get the most out of your tax professional, we’ve put together some tips to keep your advisor honest and focused on what matters to you.
More Than Just Filing Taxes
Part of working with a tax professional is planning the tax year. Think of it as a tax story, with tax season being the grand finale. There are several working parts involved in planning a successful tax year. Tax strategies involve accurate bookkeeping, business planning, and financial planning. Each part forms an important piece of your financial puzzle.
The Tax Code is Not Black or White
Often times, particular tax issues can be interpreted in two, or even three ways. Especially in a service business that doesn’t involve cost of goods or manufacturing. Taking historical credits that were designed for older industries can be done by applying the logic of the tax code and understanding the intention of the law as it was written. A tax professional who understands both the Internal Revenue Code and your business, can help you navigate the grey, in the most favorable way. When you meet with a tax advisor, make sure they understand additional strategies you can employ during the year, and which ones apply to your business.
Accurate bookkeeping is important for tax planning. Digital marketers have certain ongoing expenses like: subscriptions, marketing expenses, software development, and professional fees. Many of which may be recurring (e.i. Google or Facebook advertising spend). These expenses need to be tracked and categorized accordingly, which a tax professional can provide guidance on. If characterized appropriately, these qualified business expenses can meet the standards for certain business deductions.
It is important to have a good system in place to keep track of expenses as you go, this way you aren’t scrambling when tax season arrives. While many people do this on their own, once you scale your business, it may make more sense to outsource this function. More than anything you want to avoid going down the 40 hours with one accountant or bookkeeper, before they tell you that they don’t know tax and you’ll need to get another advisor. While there’s nothing wrong with dividing bookkeeping vs. tax, it’s best to have a cohesive team of tax advisor and accountant.
A tax advisor can help you grow your business by helping you create a business plan in order to acquire funding. Often, raising capital via debt or equity will require you to show the value of your business in terms of your projections or discounted cash flows. A good tax and finance professional will not only know how to communicate the quantitative side of your business, they will also be able to help you tell the qualitative parts of your business and describe the ins and outs of your daily operations and your personal goals. They can help you identify your strengths and weaknesses, which is paramount to creating a good business plan.
Tax strategies are part of forming a business plan, as it demonstrates to investors you are thoughtful about keeping cash in the business. By strategizing with an advisor, you have the ability to get the most out of your resources, manage your revenues and expenses in a way that benefits your bottom line, and raise the funding needed to scale. Be sure to ask your tax advisor what kind of experience they have with business planning, banks, and investors.
Consulting with a tax professional before a major purchase can help you understand the financial and tax implications of your decisions. Sometimes large expenses come out of necessity( i.e. you got the infamous blue screen on your computer), while others can be planned for. Planning on upgrading your office computer system out of want instead of need, is an expense that can be strategized. A tax professional can advise if the purchase is worth pursuing based on its return investment through capital budgeting, the impact the purchase will have on revenues and cash flow, and if the timing is right.
How Tax Planning Strategies Work
Tax planning strategies vary depending on your financial goals. For many, the goal is to lower their tax liability, which can be achieved through lowering their adjusted gross income or AGI .This can be achieved by leveraging deductions and maximizing contributions to retirement accounts like IRAs, ROTH IRAs, and 401(K)s. Some common deductions include:
- Healthcare Expense
- Mortgage Interest
- Student Loan Interest
- State & Local Taxes
- Business Expenses
- Charitable Donations
- Tax Preparation Expenses
The lower the AGI, the lower the tax obligation. However, many financial institutions rely on AGI to qualify candidates for financial products, such as mortgages. If your goal is to purchase a home, you may want to consult your tax advisor on the financial and tax implications of adjusting your AGI.
AGI also has an impact on which tax credits are available to taxpayers. Some tax credits, like the child tax credit or earned income tax credit start to phase out as the AGI increases. Tax credits work differently than deductions. Deductions work at reducing taxable income, whereas tax credits help lower the amount owed. Leveraging both helps position the taxpayer in the best possible position.
One tax credit that can benefit digital marketers is the R&D tax credit. The R&D tax credit helps reduce some of the financial burden associated with research and development. As a digital marketer if you are working on creating a new process or improving an existing process, say for tracking conversions, you could be eligible for the R&D tax credit.
Another aspect of tax planning is saving for taxes. If you are self employed or work as a freelance digital marketing professional, setting aside a portion of your income for tax payment is crucial. Since an employer isn’t withholding taxes for you, you are responsible for withholding yourself. In addition to estimated taxes, self employed taxes may also be required. These include your portion and employer portion of SSN and medicare contributions. Setting aside a certain percentage of your income will guarantee funds are available to pay your taxes.
Tax Strategies for Digital Marketers
Digital marketers can really benefit from strategic tax strategies. Some good tax planning strategies for digital marketers include:
- Setting financial goals
- Measuring financial success
- Strategizing major expenditures
- Maximizing retirement contributions
- Leveraging deductions to adjust AGI
- Leveraging tax credits to reduce tax liability
- Time business income and deductions for savings
Tax planning is about creating a better financial foundation, which allows for growth and financial stability. Reaching out to your tax advisor to help guide you along the way has never been easier. Tax professionals are more than just tax preparers, with a wealth of knowledge that can really help benefit your business. Working closely with your tax advisor can help give you an edge when it comes to your tax planning. To learn more contact the Tax Hack Accounting Group, who focuses exclusively on tax savings and strategies for digital businesses.