The Mark Perlberg CPA Podcast
The Mark Perlberg CPA Podcast
EP 104 - When to Start Tax Planning
Tax planning timing is crucial for maximizing wealth and minimizing your tax burden, with most people waiting too long and missing significant opportunities for savings and financial growth.
• When to start tax planning if you have business income volatility or uncertainty
• How one-time events like RSUs, capital gains, or inheritances should trigger planning
• Why waiting for tax law changes like bonus depreciation can cost you significantly
• Complex tax strategies often take months to set up properly with multiple professionals
• Immediate tax savings by reducing W-2 withholdings or quarterly estimated payments
• Family-based strategies need time for proper implementation during the tax year
• Advanced planning reduces stress and prevents last-minute poor decision making
• Earlier implementation means more time for investments to generate both tax advantages and economic returns
• Hiring the right tax professional early gives you time to change if needed
Visit prosperalcpa.com/apply or taxplanningchecklist.com to learn more about implementing these strategies and taking control of your financial future.
This episode is going to be geared towards those of you thinking to yourself okay, I get it, I know there's a better answer out there. I know there's people doing things that I should and could be doing, that we could potentially create tons of wealth or it'd save me tens or millions of dollars in taxes, or even just a couple thousand. But you're wondering to yourself when is the best time to take action here? When is the best time to do this so I'm not actually wasting my energies and getting a good return on my time and investment of cash? And we're going to walk you through that process here. And this is also going to be a great conversation for those of you already doing tax planning and maybe you're awaiting. We're all awaiting some very potentially transformative tax legislation, but also waiting to see how things turn out in your business. What can we do in the meantime? So we're going to talk about the timing around the implementation of your tax planning and when to get started. So some of the things that we think about here is there are sometimes limitations in how much we can help a client and how much you can even plan for your own income, because if you have volatility in your business, you may not know how much you're going to make and how much you're going to profit. And if we don't know how much you're going to profit or how much income you're going to be recognizing on the tax return, it's hard sometimes for us to plan, for what are those taxes going to be and how much taxes are we going to try to mitigate? Right, because there's a spectrum. There's a spectrum of how complex and impactful our strategies are going to be. If you're making $500,000 a year, the planning opportunities, while they are going to be significant, are going to be far different in many ways from if you're making $5 million a year. The more complex, the more profitable. The greater amount of revenue we look at, the more that we see the introduction of more advanced strategies and things that are going to be more sophisticated and are going to create additional tax savings. As you can imagine, it's just because when we get to those high levels of income and tax brackets, we can see it's more worth our time and energy into investing into the more sophisticated strategies and structures and vehicles, the stuff that's going to take back and forth with tax attorneys and other specialists to really get you set up. That's not going to really make sense in the lower end brackets, but there's still tons of opportunities which we've discussed at length and will continue to discuss, strategies that are applicable to literally anyone. So the timing of it makes it a little tricky for us to really make key decisions. So it's understandable that the volatility of your business and unpredictability may impact your level of urgency to get started with us and how effective we can be working with you.
Speaker 1:Some other things that you can think about is maybe you have a one-time event, so maybe normally tax planning is not top of mind. So let's say you have a relatively profitable business or a decent W-2, but you do have, let's say, a major event. It could be an RSU, a major capital gain event, an inheritance, something along those lines that is going to trigger the need to really do some more advanced tax planning, because you know if you don't, you're going to jump into a way higher tax bracket and put yourself at risk of overtaxation. So in this instance you may find that you're waiting to find out how things shake up. You're waiting for that one-time event to happen. You don't even know when it's going to happen or how much is the capital gain, how much is the RSU.
Speaker 1:Because of that uncertainty, you may be hesitant to get started, and understandably so, because you know, as far as the final execution on some of these ideas, we need to know how much cash is in your pocket, how much taxes are you going to be subject to and what kind of potential strategies are related to those items. And then another thing that you may be thinking to yourself here is there's the tax law changes. Right, are we going to get 100% bonus? Probably. It got through the House of Rep, is now being reviewed by the Senate, is likely to be revised and go back through the House of Rep, and you know they're really trying to get something out by early July here, but nothing's promised and nothing's been really fully executed yet.
Speaker 1:So you might be saying, hey, you know, this bonus depreciation thing sounds really exciting, but I'm going to wait a second because if we don't get 100% bonus, I think I'm going to stay on the fence and just stick with my normal guy around the corner. He does a good job on the compliance work. I don't really think there's a whole lot out there unless we see 100% bonus depreciation. So that might be going on in your mind as well here. And then you may be thinking to yourself well, it's only March or it's only April, the prior year has passed. Not a whole lot less that I can do here. And I think I'm going to hold off on actually talking to someone and investing the cash until later in the year because I'm just going to do some year end moves. I'm just going to put my money probably into this investment right here or this charitable structure here, and it really only takes a couple of weeks. So I'm going to wait until November, december and hold on to my money.
Speaker 1:So some of the folks kind of have that type of mindset as well here and while I recognize those are all legitimate reasons and there are factors that will diminish the immediate return on investment in many situations here because of that uncertainty, the lack of clarity and the timing. But in most of these scenarios, even then, I would say when I look at when to start tax planning to see the greatest return and really when the tax came, if you are really serious about this stuff and you're on the fence, the time to act is now, with the exception of a few people out there. But then again, even if you're in a $0 bracket. We got to take advantage of that tax bracket. We've talked about this in the past. Even for those of you who are unprofitable, let's take advantage of these lack of profits to some conversions, liquidate some stocks. But for most of you out there, the time to act is now and let's say we're still waiting for the dust to settle on some things here.
Speaker 1:Here's a reason why we want to start acting now. One reason is because some of the strategies we do with our clients are highly complex and they may take months or weeks to really to really implement here and really get all the moving parts together, where we're involving multiple professionals projections, actuaries and financial instruments all working together and back and forth and follow-up meetings and multiple products to evaluate from the single vendor and then evaluating how much to invest into this strategy or this product or this life insurance leverage strategy or this other tax advantage energy vehicle that produces credits, and going back and forth, evaluating your budget, evaluating the return on investment compared to what else you could be doing with your cash. All of these things are going to involve such a detailed look into your situation and even if we don't know how everything's going to shake up in your business in the law or the exact timing. You want to be prepared to pull the trigger before the end of the year, and what's going to happen is, if you wait too late, not only do spots run out. If you are considering working with a legitimate tax advisor who is in demand and has a lot, when you're in demand and you're saving your clients millions of dollars Trust me, our colleagues and other folks in the AICTC are getting tons of leads towards the end of the year you might slip through the cracks. They may have to charge you more. There's a lower likelihood that you're going to really get to have that fully detailed, thorough look through every element applicable to your situation the longer you wait, just because time is of the essence and some of these ideas take time Now.
Speaker 1:Now, other things you want to think about here is when let's get into some real strategies and why you can start seeing immediate tax savings on some of these one-time transactions. So let's say we, we're going to do a one-time transaction. Yeah, you can wait until december to actually sign the you know, to sign, to cut the check. Invest into this vehicle. That's going to save you. You know, some of our strategies will legitimately eliminate anywhere from 30 to 100% of your taxes in one transaction, whether it creates depreciation write-offs, tax credits, charitable deductions. And you may be thinking to yourself well, I heard of all these things, I'll just wait. But we can see immediate savings and here's how we can think of it. Even if you're a W-2, you can start reducing the withholdings from your paycheck Because, if we know we can eliminate all of your taxes from your job, we can, instead of waiting until April of the following year to get your refund, we can start doing some projections and take the money out of your instead of the money being withheld from your paycheck, we can reduce your withholdings.
Speaker 1:Let me say this again a little clearer know that we can eliminate or greatly reduce the taxes from your W-2 job. We don't have to wait until April of the following year to see the impact of those savings. We can work right away to reduce the tax withholdings because we know our taxable income is going way down. Now we have access to that cash sooner we can reinvest that cash into other vehicles that may further reduce our taxes, maybe reduce into more oil and gas to further drive down your tax bill. Or we can consider here investing into things that are going to compound our wealth, and maybe compound it in a tax advantage manner. Maybe, when we reduce our withholdings here, we have more capabilities to invest into real estate, where we get depreciation, and now our rent revenue is coming in on top of this and is being completely untaxed and offset by the depreciation. Or maybe we invest into a more sophisticated vehicle like a life insurance product that'll grow and compound tax-free as well. So why are you going to wait so long to get your money back? And this is going to be even simpler to execute if you are an entrepreneur. If you are paying quarterly taxes, we can reduce the quarterly tax payments immediately, and now you have greater liquidity to do whatever you want to do with it, whether that means building your wealth through passive investments, investing back into your business, hiring more people, building your empire. All those things become more possible because we are being ahead of the game and being proactive here.
Speaker 1:Now some other things to think about. Here is some of these strategies that are going to reduce your taxes are also going to generate profit, and you do not need to wait until December to start seeing the economic benefits from these things. So even if you're not going to reduce your payroll withholdings. Well, oil and gas can create significant tax reduction as one example, and there's a good chance you can start seeing the cash flow and the profit from that investment before the end of the year. We once had one of our clients invest a quarter million dollars into an oil and gas fund and about half of it came back in year one. Now I can't promise these results and I'm not a financial advisor. I don't have those capabilities and I can't say that this is typical. In fact, it's probably atypical. But when we can see close to half of your money returned to you from a really profitable investment and maybe this one was a little riskier okay, there's other variables. I'm not telling you to do this, but the simple fact is you can actually start seeing some of the profits. So why wait to get the cash flow just because you don't want to pay your accountants until the last second possible? You're going to see here that not only tax savings opportunities are being missed, liquidity opportunities are being missed and potential profitability into these investments are being missed by your prolonged decision making here.
Speaker 1:Some of the things I want us to think about here is some of these strategies are going to take your own time, and the more time that you have, the further you can take them. So strategies such as getting your family involved in your business, hiring your kids the sooner we get activated in developing these strategies, the sooner you can hire your kids, the more you can pay them, the more tax deduction you can write off. We dive deep into this in lots of our conversations. Where your kids may be in a $0 tax bracket, you pay them, you get the write-off, they're untaxed and there's so many awesome things we could do with that tax savings to grow it and compound it, maybe in a Roth to pay for college or so many other things that we can think about when we're shifting that income into a lower tax bracket. Here. The Augusta rule could be one of those things as well, potentially taking actions that will generate tax credits, some employment incentives. All of these things can be further developed. The sooner we get together and start being proactive in our tax year, the sooner we get together and start being proactive in our tax year.
Speaker 1:Another feature I wanted to consider here is just the strain you may experience when you're waiting until the last second to make a decision and talk to the right tax advisor, because time is of the essence again and you know, the sooner we can develop that relationship and that trust and understand your business, the easier it's going to be for you to sit back and know you have your taxes taken care of. So what you want to do here is you want to be comfortable, that you know that you've done everything you can to drive down your taxes by the end of the year. And if you hire someone in December, it may not be the right person. And then are you going to blame that accountant for not creating the tax savings for the year? Well, what you could have done is hired that bad person in June, fired them and then hired someone else in September to make sure you still had proper execution of the tax planning opportunities that are available for you.
Speaker 1:So for all these reasons the majority of you here the answer of when should I start tax planning? The answer is now why? Because we have intense complexity to navigate. We likely can see the immediate benefit of these strategies, whether it's economical, whether it's additional tax savings or maybe because of the liquidity we can produce. We also are going to be able to take these strategies further and deeper the liquidity we can produce. We also are going to be able to take these strategies further and deeper the sooner we get started. And then, finally, I think that we should also think about the level of stress that comes with last second tax planning.
Speaker 1:Waiting until the end of the year, q4, where you're really in that.
Speaker 1:You know that pressurized moment you got to make a decision, you're not sure where to go or what to do and the clock is ticking. It could potentially lead to some less desirable decisions and outcomes. So if you want to learn more, you know, obviously you know where to go to talk to us prosperalcpacom. Slash apply taxplanningchecklistcom. But really, if you are in the high, especially if you're in the higher income brackets, but a lot of you guys who are entrepreneurs or real estate investors if you haven't had a chance to find someone to collaborate with and develop that collaborative understanding with someone who gives you the answers you need to thrive and really build that generational wealth, now is likely the time and it's better. Actually, yesterday or last year was probably an even better time, but ideally now is the time, or as soon as possible, to start getting the ball rolling and really start taking control of your finances and your financial future through proactive tax planning. Hope this helps Subscribe and I'm going to share with you some lots of other wonderful ideas coming down the pipeline.