Why April Is Too Late
There’s a difference between tax preparation and tax planning, and most business owners only ever experience the first one.
Preparation is what happens in the spring. We take the year that already occurred and report it accurately. If the number at the bottom is higher than you hoped, there’s very little either of us can do about it by then — the decisions that produced it were made months earlier.
Planning is the other work. It happens while the year is still in progress, when the decisions haven’t been made yet and the outcome can still change. We started offering it as a dedicated service this year, and it’s been the most useful thing we do for business owners.
What planning actually looks at
For businesses with real revenue, a handful of structural questions tend to matter more than anything else:
How the business is organized. An LLC that’s grown past a certain point may be better served as an S corporation, largely because of how self-employment tax is handled. An S corporation separates the business from the individual in a way an LLC doesn’t. Business profit passes through to the owner as pass-through income, which isn’t subject to self-employment tax — the owner takes a reasonable salary, and the remaining profit is treated differently. For an LLC owner who’s currently paying self-employment tax on everything the business earns, that distinction can be worth a great deal. It’s not right for everyone — but for the businesses where it fits, the difference isn’t small.
Whether a pass-through entity election makes sense. For some S corporations, electing PTE treatment changes how state tax is paid and what’s deductible. It’s a technical decision with a real dollar answer, and it’s worth actually running the numbers.
Who’s on payroll. Business owners with children can, in the right circumstances, put them on the payroll for genuine work. Done properly, it shifts income and creates a deduction the business wouldn’t otherwise have.
Whether you’re about to be surprised. This is the simplest one and the one people most often miss. If revenue jumped this year, the tax owed will jump too — and finding that out in April, all at once, is a hard way to learn it. When we see it coming, we tell clients to get ahead of it rather than absorb it in one payment.
Why the timing is the whole point
Almost everything above depends on being done during the year rather than after it. Elections have to be made. Payroll has to actually run. Structures have to be in place before the income flows through them.
By the time you’re sitting down to file, the year is closed. We can report it well, and we will — but we can’t reach back and change what happened. That’s why the conversation is worth having now, not in the spring.
If you’ve never had this conversation
You don’t have to be an existing client. If you own a business and nobody has ever walked you through how it’s structured and what that’s costing you, that’s worth an hour of your time.
Reach out through our contact page and we’ll take a look.
