Why Start Planning for Tax Day Now?

May 14, 2023

Tax Day is stressful, but it doesn't have to be. The earlier you start planning your tax return, the more money you can potentially save. In fact, it's been estimated that those who start their tax planning in January can save up to $2,000—even if they don't use a professional service.

That's because as time goes on and information becomes less certain, there's more chance for things to go wrong with your return or for something like an audit to happen. It might be tempting to wait until April 15th rolls around, but especially now that taxes are likely to rise in 2023, the sooner you start, the better off you may be.

This article discusses the following:

  • Why a late start may cost you
  • Long-term planning generally saves more
  • Professional tax planning can save you headaches
  • How lowering your salary can lower your taxes

Why a Late Start May Cost You

Tax season seems a long way off, but there are changes to the tax code that could affect you as an entrepreneur. If you're not taking steps now to plan for these changes, you could end up paying more than necessary—or missing out on opportunities to reduce your tax bill. In the latter sense, even if you don’t delay until you’re counted as filing late, putting off planning your taxes can make them cost you more money.

Ironclad was founded as a small business, so we completely understand how time-consuming the day-to-day activities of an entrepreneur can be. Nevertheless, dropping the ball regarding your taxes won’t just impact your life now: By diminishing the amount of retirement income you may be able to rely on from your savings, a lack of tax planning may cost you (what could have been) a future worth looking forward to.

Taxes are a year-round responsibility for successful small business owners, not a one-off process. April isn't the only time of year when you should be thinking about this stuff. Tax planning is an essential part of running any business. Additionally, getting it right can help ease some of the financial burdens of being your own boss.

Long-Term Planning Generally Saves More

As a general rule, long-term tax planning will save you more money than shorter-term attempts. The earlier you start, the more time you have to grow your savings and get ahead of tax day. In the simplest terms, saving on taxes month-by-month is great, but compared to what a plan that spans years can save you, that’s usually chump change.

Imagine you sit down with me to financially plan your next decade: Especially if we take a comprehensive approach (meaning one that factors in your investing, retirement savings, business finances, and more), there are normally far more opportunities to reduce your overall tax liability.

Your “liability” is how much the IRS assesses you as owing each year. We all have to pay our taxes, but we do have a little freedom with regard to how and when—and that’s where we can strategize to make sure you owe the smallest amount legally necessary.

If you’re thinking, “That sounds great, but I can’t do it,” I get it: Sometimes, it just isn’t possible to plan right away (for example, if your annual income fluctuates or if your employer doesn't offer 401k options). Regardless, there are still ways for even entrepreneurs on a tight budget to make sure their finances are ready for tax season.

For instance, you might start contributing more to your 401(k) or another retirement plan. Those contributions are immediately tax-deductible: They grow tax-deferred until you withdraw them during your retirement. Any withdrawal is taxed as ordinary income.

Similarly, if you own a company, you might pay yourself a salary that's less than your taxable income. If your taxable income on Form 1040 was $300K, you could consider taking only $250K as a salary—and investing any remaining funds into your IRA or 401(k). This could reduce your self-employment taxes while building long-term passive investment capital inside your retirement account (where it won't be taxed until it’s withdrawn when you reach age 59 ½ or older).

Don’t Just Dream. Let’s Start Laying a Concrete Path Toward Real Financial Independence Today.

Professional Tax Planning Can Save You Headaches

Generally speaking, if you wait too long, it will be harder to save money. For instance, it can mean paying more interest in your savings account. Similarly, if you wait until the last minute, you’ll probably have to pay penalties on your taxes because of incomplete information or tax returns filed even later than intended (due to the lack of preparation).

This is why many small business owners choose to hire a professional who can help them plan their finances: It helps them keep their finances in order and allows them to get a head start on saving for next year's taxes by doing so well ahead of April. When it’s done correctly, this can save individuals thousands of dollars over time.

Professional financial planning doesn’t just help you use each tax benefit to save money. It also helps you steer clear of penalties, avoid audits, and (yes) even avoid some tax scams. Adopting a strategic approach is an important step toward ensuring that you meet all of your financial obligations and reduce the impact of taxes on your personal and business finances.

The earlier you start taking these steps, the more likely you are to see positive results from these efforts sooner.

The Sum Total

It can be uncomfortable to think about taxes, but the truth is that you should start planning for yours as soon as possible. The earlier you start, the more money you will save in the long run. Tax planning is not something that can be done on a whim. Instead, it needs careful consideration before its implementation—so that you don't make any mistakes.

There may even be health benefits, as well. In addition to helping you save money, professional tax-saving can also help reduce your stress levels since it takes care of all these details for you. Ironclad Wealth Management is ready to do the heavy lifting and crunch the numbers while you catch your breath.

We are fiduciary financial advisors specializing in tax strategies for high-income earners and retirement planning in Atlanta. Contact us to see how easy living your life and running your business, tax-worry-free, can get.

If Patrick Can't Save Your Business $5,000 in Taxes, You Get Your Money Back.

MGO One Seven LLC ("MGO One Seven") is a registered investment adviser with the U.S. Securities and Exchange Commission (SEC). Registration with the SEC does not imply a certain level of skill or training. All titles listed for individuals associated with Ironclad Wealth Management represent the individual's role with Ironclad Wealth Management, and not their role with MGO One Seven. Services are provided under the name Ironclad Wealth Management, a DBA of MGO One Seven. Investment products are not FDIC insured, offer no bank guarantee, and may lose value. Please visit our website www.WeAreOneSeven.com for important disclosures.

Please note, the information provided in this presentation is for informational purposes only and investors should determine for themselves whether a particular service or product is suitable for their investment needs. Please refer to the disclosure and offering documents for further information concerning specific products or services.

Nothing provided in this presentation constitutes tax advice. Individuals should seek the advice of their own tax advisor for specific information regarding tax consequences of investments. Investments in securities entail risk and are not suitable for all investors. This site is not a recommendation nor an offer to sell (or solicitation of an offer to buy) securities in the United States or in any other jurisdiction.

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