Top 5 Reasons You Should Work with a Tax Accountant Before Year-End
First it’s Christmas and before you know it, you’re celebrating New Years. Although the holidays are filled with cheer and family events, you can’t forget about your taxes. Ringing in the new year also initiates the start of tax season, which many small businesses and individuals dread. Working with a tax accountant before year-end is highly suggested to properly plan and for peace-of-mind heading into the holiday season.
Reason #1: You’ve Had a Major Event
Working with a tax accountant goes beyond filing forms, as they retain a significant amount of knowledge that can help you work through new situations. You might have gotten by filing your own documents in the past as a small business owner or individual, but major events need to be reported accurately to avoid any costly mistakes. Major events as an individual include divorce, having a child, receiving an inheritance, and moving to a different state. On the flip side, your small business can also have large changes, such as selling your business, investments or purchasing new ones. Individual and business returns need to be meticulously prepared. Neglecting to check one box can lead to huge mistakes on the return, which the IRS is usually quick to catch. Planning for these items needs to be done early, leading into the next reason to work with a tax accountant before year-end.
Reason #2: Tax Planning Opportunities
Tax planning strategies need to be considered well before year-end to give individuals and businesses ample time to put them into effect. Who wouldn’t want to save money on their taxes each year? The insight and experience a tax accountant has with businesses from all different industries is the key component to saving you money. For example, a small business that is set up as an LLC might actually save more money by converting to an S-corporation. A tax accountant can put together a comparison to see which is more beneficial for you to make the most informed decision. The forms to do this need to be filed well before year-end, making it critical that you are in contact with an accountant before the deadline. Additionally, if you are planning on receiving extra income, you should consult with a tax accountant to see the tax implications to make sure there are no surprises when the return is filed at the end of the year. Moreover, creating a tax plan can give you an accurate picture of what you will either receive or owe at the end of the year when your return is filed. If you are projected to owe a significant amount of money, you can begin planning and saving for that amount.
Reason #3: Compliance with Regulatory Bodies
When the year-end does finally roll to a close, you need to be sure you are meeting all the required deadlines. The IRS imposes a stiff penalty of 5% each month the tax is unpaid for returns not filed timely (IRS). This can be a significant amount if you did not plan properly. The individual tax return deadline date is April 15, unless you file an extension, which should be done by a tax accountant. Moreover, many individuals are required to make estimated quarterly tax payments throughout the year. The penalties skyrocket if these payments are not made. A tax accountant can give you all the details and tell you the required payments so you can be in complete compliance with regulatory bodies. Having a tax accountant lined up before the year ends is critical to meet these deadlines. Furthermore, if you are a business owner, there are additional deadlines you need to be in compliance with. For example, the deadline to file 1099s and W-2s is January 31, which only gives you a short window after the year closes. These forms need to be accurate, which is where a tax accountant comes in. A tax accountant is knowledgeable about all the requirements on these forms, making them your trusted advisor for accuracy and timeliness.
Reason #4: Save Money
One of the top benefits of working with a tax accountant before year-end is the money they can save you. From avoiding late filing penalties to claiming qualifying deductions that you didn’t know about; a tax accountant is an important piece in the puzzle. Fully understanding your tax situation before the end of the year allows you to make more informed decisions, such as holding off on selling a large investment or purchasing another piece of business equipment. Timing of additional income is critical to master to get the most favorable tax rates. If you notice tax rates decreasing next year, you should consult with your tax accountant on your investments to properly time them to take full advantage of reduced rates. As mentioned before, a tax plan is the key component that will help you reduce your tax bill. Moreover, understanding legal strategies for saving on taxes is critical to avoid correspondence with the IRS. Tax avoidance is legal, while tax evasion is illegal and can come with jail time. Your tax accountant will know the different legal strategies that you can use to save money, making them an asset to have on your side.
Reason #5: De-Stress and Enjoy the Holidays
As December rolls in, everyone is in holiday mode, from Thanksgiving to Christmas. The last thing you want to do is be bogged down planning for taxes. Pass this burden off to your tax accountant to fully enjoy the holidays with your family. Best case scenario is a tax plan in hand before Christmas, giving you ample time to plan for the upcoming payment or refund. The stress of not knowing where your taxes stand can take away from time spent with your family. Avoid this altogether by contacting a tax accountant early on. Additionally, as much as tax accountants love to work with numbers, they have families too. You want to be sure you catch them before the holidays to ensure you receive your tax plan and tax advice with enough time to make decisions on payments and implement tax planning strategies. Your outsourced accountant can work with you to get your books in tip top shape for your tax accountant with time to spare.
Summary
Working with a tax accountant before year-end is critical to stay on top of deadlines, save money and fully enjoy the holidays. You don’t want to be scrambling at the last minute to get your business or personal taxes in order and risk missing a deadline or forgetting about an eligible deduction. Your tax accountant files the returns, but an outsourced accountant is needed on the back end to ensure the books are up-to-date and accurate. Without the proper accounting, the books won’t be in the state where a tax accountant can help you file the returns and effectively plan. When you are looking at potential candidates to outsource your accounting to, consider Basis 365 Accounting as an industry expert, making them your trusted advisor to get your books cleaned in shape and useful tools to manage your business.
Sources
IRS. “Failure to File Penalty.” IRS, 15 November 2021, https://www.irs.gov/payments/failure-to-file-penalty. Accessed 20 November 2021.
Disclaimer
Basis 365 Accounting is not a CPA firm and does not offer tax advice. Contact your Tax CPA for tax guidance or as us for a referral.
