It’s the end of the year. You bring all of your financial records to your CPA to file your tax returns. A few days later you receive a telephone call from your CPA informing you that you have tax obligations that you need to pay. You are astounded by the figures and are concerned about how you will ever come up with the funds to pay these tax obligations. Not a pretty picture. And, you are livid! How did this happen?
At Tom Vignali CPA, Inc., we don’t allow our clients to go through this process. None of our clients are allowed to receive a “year end” tax surprise. We work with our clients throughout the year to compile periodic and accurate financial statements which identify potential tax obligations. We assess current tax obligations in relationship to projected revenues and potential tax obligations and make recommendations on how to process estimated tax payments in advance. This avoids all of the unfortunate surprises that might occur at year end.
But, let’s take a step back. A lot of this has to do with accurate tax planning,….something that some companies ignore until the end of the year. In reality, it is something that should be done throughout the year. As profits increase (which is what most companies want to see), potential tax liabilities increase as well. It is good to have high profits and excellent cash flow,….but if there is no effort to plan for potential impending tax liabilities, this could have a devastating impact on cash flow later on.
Tax planning is an ongoing strategy
At Tom Vignali CPA, Inc., we work with our clients constantly to identify profitability in conjunction with tax liabilities to make critical decisions which could impact/reduce the tax liability issues. Capital asset acquisitions might allow for significant tax liability reductions. Such acquisitions must be made in coordination with strategic plans and cash flow capabilities, but, they could reduce the ultimate tax obligations which would face the company. This is not to say that a company should make capital acquisitions just to reduce impending tax liabilities, but it is a tactic that should be considered in the overall strategic financial plan of the business. There are other expenses which could be adjusted to reduce the potential tax liability, but again,…these need to be addressed in conjunction with the strategic financial plan and cash flow capabilities.
In reality, it’s a pretty simple process. The compilation of periodic financial statements will indicate potential tax liabilities. Current financial statements used in conjunction with year-end financial projections will indicate the total potential tax liabilities for the year. At this point in time, we work with our clients to determine if the tax liabilities are going to be reduced via acquisitions, increased expenses, or an anticipated reduction of revenues. If there are no tax liability reduction tactics, or, if the tax liabilities appear to be realistic, we then implement an estimated tax payment plan to address these liabilities in a timely fashion in coordination with available cash flow projections. By doing this, there are no surprises at year end, there are no tax penalties for not having made estimated tax payments, and the company has been able to adequately plan for cash flow expenditures. Although we said it’s a pretty simple process,….in reality it does tend to get a bit complicated with things like depreciation and various other tax implications. But, that’s what we do,…..we make it a simple process that’s easy to understand.
Part of complete strategic financial plan
We have discussed strategic financial planning, cash flow analysis, profitability and various other topics in previous blogs. All of them are critical in developing a complete strategic financial plan for your business. They all provide the critical data necessary to facilitate accurate tax planning strategies.
So, if you are one of those companies that gets surprised by that call from your CPA during end-of-year tax filing informing you that you owe a ton of money in taxes,…this blog is for you. There are numerous things that you should be doing throughout the year to avoid this angst. You should be doing all of them just to control and predict the future success of your company. Tax planning just happens to be one of them.
No one likes that year-end call. No one likes that huge bill. Let us solve that problem for you once and for all. At Tom Vignali CPA, Inc., we address ALL of these issues and provide you with all of the advice and counsel you need to make sure you know what is happening with the finances of your business every step of the way. We make accounting easy so you can spend more time running your business.
Contact Us:
Thomas W. Vignali CPA Inc.
118 Point Judith Road
Narragansett, RI 02882
T: (401) 415-0798
tom@tomvignalicpa.com
www.tomvignalicpa.com
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