There’s never been a more important time in history to have a financial plan. Be it that you’re a small business owner or an employee, the middle class has been screaming for financial education now more than ever. Somewhere over the years, taxpayers forgot to ask questions about their money. How much tax are they paying? To whom are they paying these taxes? How can I plan year after year, day after day? Financial plans aren’t just a one time check-in with a CPA during tax time, they are constantly being affected day over day because of internal and external circumstances; thus, they should be evaluated regularly. Taxable events happen every day, and we as a society need to change from reacting to the tax consequences and start planning for them. Financial plans enable you to take FULL control over your money and finances, which enable you to use every hard-earned dollar you work for work for you in return.
The most important part of taking control of your financial situation is gaining full control over your income tax position. This includes understanding how much federal, state and local income taxes you pay each month, how much tax you pay towards the medicare and social security tax fund, and budgeting accordingly. This isn’t about saving or investing; rather, it’s about control of one’s money. As Americans, we work hard for our money, and whether we like it or not, we partner with Uncle Sam to pay him approximately 30% of it. Luckily, once you gain control over your income tax position, you can decrease this 30% tax bill, but it requires you taking control of your income tax situation and creating a plan to change it. If you cannot do so, you’re exposing yourself to critical financial errors. Once you have full control of your money, you have full purchasing power over the use of it. For example, you can pay down credit card bills instead of paying interest expense. Another option is that you can invest in the stock market, instead of waiting to get a tax refund. Better yet, you can EVEN BORROW from the government and use your money owed to the government to leverage your financial positions year to year.
As explained above, taxes are the number one financial priority people should address right now.
I encourage every person in America to reach out to their CPAs and ask for a financial health checkup. Did you owe taxes last year? Did you get a tax refund? How does that translate to your financial profile today? If you were someone who had a hard surprise this year, take that as a sure sign that it’s time to reach out to your CPA and plan how to make the best of your situation.
To provide some specific advice: If you’re an employee, consider that you’ve been authorizing your employer to withhold your money each week, no questions asked, which in turn you rely on them to pay the IRS, no questions asked. My advice – start asking questions. And if your CPA does not have the right answers, find a new CPA.
If, on the other hand, you’re not an employee but a small business owner, first and foremost you need to take a hard look into whether it will be worth continuing your business in the post-COVID economy. If it’s time to close up shop, reach out to a legitimate business advisor to wind down properly, and be sure they can help you do so in the most tax-advantageous way possible. With the bad news out of the way, the good news is that business owners have never had a better chance than right now. It’s time to take a hard look at your profit and loss statement to determine what costs are important going forward. Any costs that aren’t necessary, cut them. If necessary, borrow money so you can stay liquid. Money is cheap, meaning it’s inexpensive to borrow, so stay liquid if at all possible. Now, you do not need to go at this alone. Be sure to hire a legitimate CPA, one who is also a business owner themselves and understands your situation.
If hiring an accountant right now seems to be out of budget, I encourage you to rethink your decision. If you do not know your business numbers, you do not know your business. If you can’t afford an accountant, you can’t afford your business. If you can’t afford an accountant and you don’t know your numbers, you don’t have a business…you have a hobby.