Episode 46: What Works Wednesday: Things You Can STILL Do To Lower Last Year’s Taxes

PeaceLink Financial Planning LLC

Transcript:

Welcome to another episode of What Works Wednesday. Today, I'm going to talk about how to optimize your taxes this late in the game in tax season. The things you can still do to optimize your taxes as a self -employed professional. So as I record this, we are entering the last two weeks of tax season and, you know, stress is at an all -time high, especially for self -employed professionals who need to get their books in order, who need to get their taxes filed.

who need to maybe get their information to their tax preparer. And what I want people to know in this episode is even this late in the game, there are still things you can do to optimize your taxes. See, a common foundational understanding we have to have about the IRS code, about the tax code, is that it is built to incentivize the small business owner. The small business owner stimulates the economy on average,

more than most W2O employees. So the IRS code wants to incentivize us. The government wants us to start businesses, start, create jobs, employ other people. And so they give us a lot of tax incentives on how to do that. The problem is with such great opportunity comes such great complexity. And most of the time, when I look at entrepreneurs and self -employed professionals, tax returns, everyone is tipping the government.

Everyone is tipping the IRS and I always tell them tip your server, not the IRS. They're overpaying because they're just not taking advantage of different tools and resources at their disposal because they don't know about it. And maybe their tax preparer is just a preparer. They're not an advisor. When you hire a tax professional, you want to make sure that they also do tax planning, tax advising and ask them, what does that look like?

Because sometimes they say it and really it's just there if you ask questions. You want someone who's going to file your taxes and then meet with you to review it. We meet with all of our clients after their taxes are done to plan looking forward. Because when we sit from January to April and we're looking at our taxes, at that point there's only so much we can do to impact our tax return. Most of the things that we could do ended December 31st.

So now we're finally thinking about our taxes for the first time and it's too late. So that's why I always encourage tax planning. Look forward. After your taxes are done halfway through the year, you can kind of see, you know, how your business is doing, what you have in the pipeline. You can get a good estimate of how your business is going to look. Now let's look through the front windshield, not the rear view mirror and say, what can we do between now and December 31st to really optimize your taxes?

But if you didn't do that, which most people didn't, there are still a couple of things you can do now in order to impact your taxes. So the first thing is getting really crystal clear on your profit and loss statement, getting really crystal clear on your books. I was filing someone's tax return the other day. They, and I noticed, hey, they're, they use actual expenses for their car as opposed to mileage, but.

They hadn't been filing any depreciation on their car, which if you do actual mileage, you're supposed to depreciate the value of the vehicle over five years. So we went back, we looked at the original cost, we got the schedules in place, and now we're retroactively doing the depreciation, which is going to be a lot, but it's going to be a big tax deduction for them. And that's something that if they hadn't had their books up to date, we wouldn't have caught. Things like really getting clear about what was a business expense, what was a personal expense, having your book keeping up to date.

Oftentimes this time of year people are scrambling and they just, you know, give, you know, this is my best idea of what this cost or what I spent. And that's not good enough. We want to be really clear because the more we can drill down into that, the better your taxes are going to look and the more deductions you can find, the more write -offs we can find. All right. So that's number one. It's pretty easy. Number two, the biggest thing. This is the biggest thing you can do at

this late in the game in order to really lower your taxable burden is to contribute to a self -employed retirement account. So there are three different types of retirement accounts. We have a What Works Wednesday episode on this podcast a few months ago on these options, a SEP IRA, a Solo 401k, a simple IRA, and even a traditional IRA.

you can all contribute to up until the tax filing deadline. Now for some of those, like the solo 401k, that's new. It used to be December 31st was the cutoff. The Secure Act that was passed just a couple years ago changed that. So now all of those you can contribute up until you file your taxes. That's not the case for a regular 401k employee. They have to take it from their paycheck. So December 31st, if you didn't contribute to your retirement account,

you didn't contribute to your retirement account. But as a self -employed professional, you can say, hey, I have cash in my business account. I need a business deduction or tax deduction personally. I'm going to set up a SEP IRA and I'm going to fund it. I'm going to set up a solo 401k. I'm going to fund it. Simple IRA, traditional IRA. And those are places if you didn't max them out or if you haven't contributed to them or don't even have them set up yet, you have until April 15th