On today's episode; Steve sits down with Roger Knecht, President of Universal Accounting Center to discuss the ways in which both firms' distinction between tax planning and tax preparation helps their clients stay ahead of the game with proven strategies for your business!
Episode Transcript
Intro:
You're listening to the Practical Tax podcast with tax attorney Steve Moskowitz. The Practical Tax podcast is brought to you by Moskowitz LLP, a tax law firm.
Steve Moskowitz:
Welcome to everyone. And we're looking forward to another podcast, and we're looking forward to tell you all the benefits you can have for your tax return. And it's a shame, 'cause most people, they think about their tax return, and they think about, well, that's some guy movin' the numbers from one place to another. And you know what? We're already laughin', there's so much more to it. And in addition to savin' you taxes, this also helps you to run your business. So, what I'd like to do is go ahead ask our guest to introduce himself and tell us all about you.
Roger Knecht:
Happy to. First of all, Steve, thank you for having me on the webinar or podcast here. The idea is, I'm Roger Knecht, President of Universal Accounting Center, and I've worked with accounting professionals for more than 20 years now, helping them run and operate their businesses. And the advice, the suggestions that I hope to offer today are meant to help you build a better relationship with the accounting and tax professionals that you're interacting with, as you run your businesses and live your lives.
Steve Moskowitz:
Excellent. And what we're gonna do is go ahead and say, so somebody knocks on your door and says, "Hi, how can you save me money? "What's the secret, what do the big boys do?" What would you tell 'em?
Roger Knecht:
Well, the big boys have a variety of strategies that some of us lessers don't necessarily have access to, but I can give you the distinction that I think we should start with, in that there's a difference between tax planning and tax preparation. I think one of the first errors that we need to recognize is, whether we're individually or as a business, looking at the taxes, we need to realize that December 31st for most things is kind of a drop dead date, and too often what happens, whether either individually or with our companies, we fail to realize that tax season isn't April 15th or maybe some other tax deadline. It literally is the end of the calendar or fiscal year, and so anything we can do with the tax preparer before those deadlines to mitigate our tax liabilities is very prudent. It's smart, it's important. Sit down with someone and actually kind of come up with a strategy, a plan of how you're going to mitigate your tax liabilities.
Steve Moskowitz:
And that's so true, and that's so important. And that 12/31 deadline, I call it 12/31 Year One, is so important, and so many things do have to be done by 12/31 Year One, however, there's some exceptions. A lot of the pension plans allow you to go ahead and create them and fund them up to the time of filing the return plus extension, so that's something you can do in Year Two that will save you taxes in Year One. And another thing is amended tax returns. A lot of times clients will come into our office, and I'm sure the same with yours, and you say, "Well, you can do this and this and this." And they invariably say, "Oh, is that new this year?" And I say, "No, it's been around for years." And they say, "Well, how come my last person didn't do that?" And we say, "Well, that's why you're here." And then, we can go back and amend the federal return for the last three years. So sometimes, it's not only about saving money for the current year, but going back three years on the federal return. And if you're in a state that has a state income tax, amending that one as well, and there's different statute of limitations for those states. So Roger, tell me some other things, when somebody walks in the door and says, "Well, what should I bring with me?" What do you tell 'em?
Roger Knecht:
Oh, good question. Well, first of all, they're expecting a variety of forms from you, and so anything that you have that reflects say any investments that you currently have access to, any income streams that you're obviously using, whether it be a W2, a 1099, K1. Those types of things are ones that you need to be bringing to the meeting because they're going to use those to file, and from a business point of view, it's very similar. You're bringing in your P and L, your balance sheet. Those types of things are what are necessary for the filing. But just to back up a little bit, I do wanna stress that your first meeting with the tax preparer should not be at tax time when they're filing. These meetings should be taking place earlier. And you were correct to say that there are exceptions to that 12/31 deadline, and that's to simply say that, even though you can invest and maybe fund some pensions and so forth, even though that funding can occur prior to the filing, the plan should have been discussed before that year end, that that was the intent or goal should the funds appear. So it shouldn't be kind of a last minute hustle of we're trying to generate the money and find the cash to make those fundings. We should have actually been strategic about all of this and beforehand had those conversations, and so it's really stressing the point that there's a distinction between tax planning and the preparation and filing of the return.
Steve Moskowitz:
Roger, that is so correct, and one of the things that I always say to clients in our practice is most people think, oh, well that that's something I have to do in April or March. In fact, tax planning is something you should do all year round, and the tax return itself should be the mere summarization of the year's work. And you even take a look at Tim Cook, the head of Apple, and he's talking about how much time he spends with the company's tax planning, and they're an example that I use for people, because new client comes in and I say, "Hi, so you make more or less than Apple Computer?" They laugh, "Ha, ha, ha, "of course, I make less than Apple Computer." And I said, "But guess what? "You pay more taxes than they do." That's why the tax planning is so very important. And Roger, what do you do if somebody comes in and says, "Hi, you know, I haven't filed my returns for years, "and I don't have any records." Now, what do you do?
Roger Knecht:
Well, it does differ. You know, it is a case by case thing, but it is not unheard of. Typically what happens is, some people for various reasons avoid paying taxes, and we won't get into the justifications or rationalizations as to why they don't, but I will say that, whether they're trying to buy a home, a car, some type of thing, they're actually needing those tax returns. And so there is that motivation, all of a sudden, to say, "Oh, darn it, "I need to actually now get this taken care of." And they walk in, and they've got say, two, three, four, whatever years of filings that need to take place, and that's where it really gets interesting, because now we're looking at penalties. We're trying to figure out, okay, what strategy do we wanna take, even as we're now dealing with back taxes. So there are things that we need to be aware of, so it does happen. Unfortunately, it is something that we have to deal with, but it is something that can be resolved.
Steve Moskowitz:
And we resolve that for people all the time, and there's all kinds of ways to do this. And another thing is, when people think about their accounting records, a lot of business people think, oh, that's such a pain. I got so much work to do on my taxes. And what I'd like to tell 'em. I said, "Well, wait a minute, I don't." And as you know, before I was a tax attorney, I was a CPA. The accounting records are not just to do your tax return. It's to help you run your business. You wouldn't dream of driving your car with your eyes closed, then why.
Roger Knecht
No, I think, that's, yeah, that's a very important point. Some people actually do think the reason for accounting is to determine your tax liability, meaning they equate taxes and accounting as being one and the same, and that's actually not true. You shouldn't be just looking at your accounting information when you're filing the tax return, looking at the yearend numbers. For the business owner, they should be using this information while they're going through the year, looking at months and quarters, seeing what trends exist, making informed decisions based on the data that the accounting's providing. And so, a true business owner, that's interested in being successful and profitable, will utilize the accounting information. Now I do realize that most accounting professionals speak a foreign language to the business owner. They're very good at what they do, but perhaps don't speak that language of accounting, and that's totally fine, but you need to be working with someone that, as an accountant, can act as that translator to help kind of isolate and identify the trends and things that the business owner needs to be aware of and noticing. Great example is just cash flow. I mean, a business owner could be really excited about the sales going on in the business and realize that they're busy, but cash flow wise, there could be a problem with supply and materials and vendor relationships and payroll. And so, business is good and busy, we just don't have the cash flow to run the company, and we wanna avoid those challenges, and that communication between the business owner and the accountant is what's gonna facilitate that.
Steve Moskowitz:
And that's so true too. And you know, to us, they're in taxes. The characterization is so meaningful, but most business owners look at their checkbook. How could I have a profit,
