When Is The Perfect Time For Your Tax & Wealth Planning?
This week, I'm on to the next habit:
Habit #3:
Don't put off until tomorrow what you can do today
We've all heard this adage before. And let's face it, when it comes to taxes, most people are happy to put things off until later.
The reality, though, is it is crazy to put off anything you can do today to reduce your taxes. Every day you delay your tax planning represents money you are unnecessarily giving to the government that you could be putting in your pocket.
That is why now is the perfect time for your tax planning.
This is especially true when it comes to forming your entity. I have too many people tell me that they are going to wait until the beginning of the year to form their entities.
This is crazy!
Even if your tax planning isn't perfect, forming the entity now gives you the ability to make changes in the future retroactively that you cannot make if you don't have the entity. This is a BIG deal when it comes to tax savings.
The same is true with your wealth planning and other types of tax planning.
Take, for example, putting your tax return information together. Most people do this once a year when it is time to prepare their tax return. But this is one area where it truly pays to do it today (and every day).
Whether it's using manila folders or software like QuickBooks, keeping your tax return information organized throughout the year can reduce your taxes (which in turn can have a tremendous positive impact on your wealth planning).
I see this all the time on tax returns. Those who stay organized throughout the year end up with lower taxes than those who don't - even when their income and expenses are similar.
There are a couple of reasons for this. First, those who stay organized throughout the year are better able to capture ALL of their expenses, whereas those who only do it once a year usually miss several expenses.
Second, those who stay organized throughout the year are better able to plan their taxes. Their figures throughout the year are more accurate which leads to better tax planning.
For example, when I work with a client, I may tell them that we need to take action when their business hits net income of $X. Those who stay organized throughout the year know when they hit that mark and can take the steps to reduce their taxes. Those who don't stay organized throughout the year usually miss the mark. They either estimate too high, in which case the tax planning is not as effective, or they estimate too low and they end up paying more tax.
Many people put off their tax planning, whether it is setting up a new entity or getting organized or some other activity. What many discover is that their situation is much better once the tax planning is done. They have better direction, better focus and better tax planning!
Understanding how these rules apply to you will help you create the habits in your daily routine to reduce your taxes.
by: Tom Wheelwright
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