5 Tips to Get Through Tax Season
5 Tips to Get Through Tax Season
Dear Money Revealed Reader,
Growing up in a family that owned a small business, Jeff Socha, senior adviser and founding partner at Ark Financial, often heard complaints that taxes were a weighty burden, and fancy loopholes were for the super-rich.
There was no break for the little guy.
In his conversation with us on Money Revealed, Jeff told us how he became motivated to solve this problem. He got into financial services, and with the little guy in mind, he began his search for answers.
What did he discover? Here are just a few of the tax-savings gems that Jeff shared with us:
Timing Is Everything
One problem is that people ask CPAs about tax strategies at the height of tax season… a time when their adviser is swamped with work and can’t help them properly.
A better strategy is to get with your financial adviser ahead of time to really plan, before it becomes a crisis. “We come in and we’re looking at what are the things that you’re not doing that if you started doing — or what are the things not present in your life that if we added to your life — would make a positive impact?” When you’re able to do that in advance, you have all year to maximize tax strategies and save money.
Make the Code Work for You
With the help of an adviser, a smart entrepreneur can take full advantage of the tax code. Socha insists that there’s really no gray area to the tax code — it is all in clear black and white.
“Look, this is what the code says; we can use it or we can’t. And you have to be a little creative. You have to think, How can I apply this code to my benefit? It’s not just, Well, I read the code and nothing comes to mind.”
What does using the code to your advantage look like? He offers the example of his wife’s home-based real estate business. There is a provision in the tax code for deductions relating to gym and athletic facilities for use by employees. The code does not rule out these facilities being in a private residence in which business is conducted, so Socha and his wife figure their home gym and pool into their deductions.
Don’t Fear Being Audited
But what if you get audited? It’s true that the U.S. tax code is based on an honor system that relies heavily on a taxpayer’s fear of being audited to make sure they pay what’s owed. This fear can keep you from taking full advantage of the tax credits you deserve… Many people think that it’s better to overpay than risk being audited.
But audits should be seen as no more than a spot check to assure that one is truly honoring the code. “And so if you don’t have anything to hide and you’ve been following the rules and you haven’t been doing anything wrong, then you don’t have anything to worry about it,” he asserts. Getting past this fear opens one’s mind to creative ways to save on taxes.
If You Enjoyed It, Can You Deduct it?
A common scenario he sees when working with entrepreneurs is that they attend seminars, trade events, conferences and other functions in exciting destinations. But because there’s an enjoyment factor to these trips, people are hesitant to look at them as tax deductions.
Nowhere in the tax code does it say that business-related travel to a lovely destination has to have a direct productive result for the business. “There just has to be a business purpose to it,” he explains.
The Tax-Saving Power of R&D
Socha also points to research and development as an avenue for tax savings. He explains, “The government incentivizes us through the tax code, right? One of the incentives that they have is for us to create and innovate in the United States. They want entrepreneurs to innovate and create new products.”
While the term “research and development” often brings to mind a scientist in a lab coat, it doesn’t look like that for most businesses. Every successful business involves some innovation, trying out new ideas and approaches and failures on the road to success.
If the pharmaceutical companies get tax credits for research and development, so can anyone else.
It all boils down to the creativity and innovation. “You have to be creative at creating a product that’s useful. Why couldn’t it be creating any other type of product you could imagine?”
Taking a cue from Jeff Socha, entrepreneurs should not be afraid to look at the tax code for themselves, get creative with a trusted financial adviser and look for ways that the tax code fosters creativity, incentives and innovation.
After all, it’s time well spent, and the reward is some welcome tax relief!