There are essentially two distinct approaches that Certified Public Accountants (CPAs) adopt.
First, we have the compliance-oriented CPA. This type of CPA typically enters the picture during the annual tax return season. Your interaction with them is fairly straightforward and occurs once a year. They focus on ensuring that your tax returns are accurately prepared and submitted, resulting in a modest fee for their compliance services. After settling your considerable tax bill, you express your gratitude and the cycle repeats itself after a year.
On the other hand, there’s the proactive tax planning CPA. Interaction with this type of CPA is more frequent and strategic, occurring about 4-5 times annually. These meetings are much more in-depth and cover a range of proactive strategies. Topics of discussion include:
- Evaluating the benefits of electing into pass-through entity taxation.
- Analyzing whether increasing reasonable compensation could enhance your Qualified Business Income (QBI) deduction and whether this increase outweighs the additional payroll tax.
- Considering the structuring of your LLC as an S Corporation.
- Assessing the need for incorporating a C Corporation for fringe benefit purposes.
- Exploring the use of real estate investments and cost segregation studies to reduce taxable income.
- Projecting your tax liabilities for the upcoming years and determining appropriate quarterly payments.
- Debating the suitability of a captive insurance plan for your business, including contribution limits.
- Determining the feasibility of employing your children through your business.
- Planning for trusts to navigate the potential changes in estate tax laws in 2025.
- And numerous other critical financial considerations.
Thanks to these proactive planning sessions, you could see a substantial reduction in your tax obligations. This decision, while seemingly straightforward, is often overlooked by many. However, its impact on your financial health can be significant and long-lasting. Let’s dive even deeper into year-end tax planning strategies.