This is the time of year that savvy people who have experienced business success in 2021 think hard about their tax bill.
Consider the following situation: Whether through sheer luck or hard-won business acumen, your income has increased significantly from the prior year. That’s the very good news. Now for the not-so-good news: That boost in income means that you will likely write a larger check to Uncle Sam in the upcoming tax season. For people who don’t plan for it, the conversation they have with their accountant in February 2022 may give them quite a shock. They may need to write a considerable check to the US Treasury, perhaps for tens of thousands of dollars. And even though your income is greater, you may find yourself in an uncomfortable position, particularly if you made big year-end purchases with the extra cash.
At Isakov Planning Group, we like to keep things in perspective. The fact that you may owe additional taxes is not bad news; it’s just a byproduct of your success. It’s certainly better than having a bad year, with much lower income but a smaller tax bill! To avoid any unpleasant financial surprises, we advise our clients to set aside 25% of their additional income for tax payments. This is a well-accepted, general accounting rule.
Overall, the right approach is to focus on tax planning. From mid-Aug to Oct 1, we talk with our clients about their income status and whether they expect significantly greater income through the end of the year. Accountants are excellent at evaluating your financial records for the year and establishing how much money is owed, but they are not typically proactive.
At Isakov Planning Group, we use many instruments to reduce your tax burden—before April 15th. We work with accounts to help understand your estimated year-end tax liabilities. At that time, we will formulate a strategy for protecting a portion of your income for future tax payment and hopefully shrink the additional amount you owe related to your increased income.
If you’ve had a better year financially than you thought you would, contact Isakov Planning Group today. Now is the time to plan on taking care of that bigger tax liability. We can help manage expectations and potentially reduce how much you owe Uncle Sam.