The word “taxes” makes many break out in a cold sweat, feeling stressed. But it doesn’t have to be that way with the proper planning and the right information. It is important to not ignore the important tasks of accounting and tax preparation all year long to avoid being overwhelmed at the year’s end.
There are certain rights we have as taxpayers and certain habits we can put in place to stay on top of a task that will continue to wreak havoc on our emotions unless approached systematically. In this article and podcast, we speak with Tatiana Tsoir, an award-winning accountant and turnaround advisor about the topic of taxes and planning. We expand on the principles here.
Why is Tax Planning Important?
Tax planning is essential because failing to organize and address taxes on time can lead to serious consequences. If taxes are neglected or improperly filed, individuals will face penalties, interest charges, or even legal action from the IRS. These consequences can add up quickly, making the tax burden heavier over time and affecting financial stability. In extreme cases, persistent non-payment can lead to wage garnishment, asset seizure, or damage to credit scores, impacting financial health in the long run.
Beyond avoiding penalties, tax planning helps identify potential deductions, credits, and strategies that can reduce the amount owed, ultimately keeping more money in your pocket. Thoughtful tax planning also supports long-term financial goals, providing clarity on cash flow and aiding in budgeting for major expenses. Though it may seem like an inconvenience, consistent tax planning helps avoid costly errors and ensures compliance, bringing peace of mind and financial security.
How to Shelter Income
Effective tax planning for income involves strategizing to potentially shelter some income through legitimate business expenses, depreciation, and careful timing of large purchases. For business owners or those with side income, qualified expenses—such as office supplies, equipment, travel costs, and even certain utility bills—can often be deducted, reducing taxable income and, therefore, the overall tax burden. For instance, purchasing essential business equipment, like computers or machinery, can provide immediate tax relief. The IRS offers deductions based on depreciation, so if an asset depreciates over time, you may be able to deduct a portion of its cost each year, which helps offset income. Additionally, the Section 179 deduction allows you to deduct the entire cost of some assets in the year of purchase, which can be especially helpful for high-income years when a substantial write-off is needed.
Timing is also crucial in tax planning. If you anticipate a higher income this year, you might consider accelerating major purchases, such as equipment or technology, to benefit from the deduction sooner. Conversely, if your income is lower this year, it might be wise to delay a large purchase until January, positioning it in the following tax year. Strategically timing expenses to match high-income periods can maximize tax savings. Losses from a previous year can also sometimes be carried forward, offsetting income and lowering tax liability in profitable years. By carefully analyzing income and expenses, business owners can reduce their tax obligations and better manage cash flow, using tax planning as a tool to reinvest savings back into their business.
Keeping Records
Creating notes on any unusual or one-off purchases and documenting lesser-known vendors can be incredibly valuable for tax planning and record-keeping. These detailed notes create a clear money trail, making it easier to explain or justify expenses if questions arise during tax preparation or an audit. By keeping records of why certain unusual purchases were made and how they contribute to business operations, you establish transparency and strengthen the legitimacy of deductions. This is particularly important for expenses that may not fit the standard categories or that might raise red flags, such as rare equipment purchases, unique software subscriptions, or payments to freelance vendors.
Thorough documentation of these purchases also simplifies future financial planning, enabling you to track spending trends, monitor cash flow, and accurately assess what kinds of investments drive value in your business. In the long run, these notes save time and reduce stress by providing clear answers to potential questions, whether from tax professionals, auditors, or yourself when revisiting records. Good notes can “pay off” not only in terms of tax savings but by contributing to more organized financial management and informed decision-making year-round.
Tax Planning for Different Sized Businesses
According to Tatiana, the U.S. tax code is structured to benefit small businesses by offering numerous deductions, credits, and incentives designed to support growth and reinvestment. The only real difference between small businesses and larger corporations in terms of tax planning is the number of advisors they can afford and the volume of records they maintain. Small businesses can take advantage of many of the same tax benefits as large corporations, but the key lies in keeping organized records and seeking knowledgeable tax guidance to fully leverage these opportunities.
The Taxpayer Bill of Rights reinforces these principles by ensuring taxpayers have a right to clear and understandable tax information, the right to quality service, and the right to retain representation—among other rights. These rights encourage small business owners to seek the necessary guidance and resources to make the most of the tax code. Understanding and exercising these rights can empower small business owners to use the tax code effectively, creating opportunities for tax savings and protecting their interests during audits or inquiries. The combination of smart tax planning, consistent record-keeping, and knowing one’s rights allows small businesses to navigate the tax system more confidently, leveling the playing field even with fewer advisors.
Tax Warnings
The IRS is particularly wary of “sham” transactions—expenses that are presented as business costs but lack a legitimate purpose or clear justification. Engaging in such transactions, especially when they involve personal expenses labeled as business-related, can trigger a red flag and potentially lead to an audit. It’s crucial to ensure that every expense has a clear, verifiable reason, particularly for substantial costs like travel. For example, when some of the details of payments made by Fani Willis of prosecuting the Trump case in 2024 disclosed, the public and the IRS scrutinized the nature of expenses that were lumped together. If there’s no solid business reason supporting it, the deduction may be disallowed, or worse, the transaction could be classified as fraudulent.
While it is legal to blend business and pleasure on trips, businesses must be able to substantiate the business purpose with thorough documentation, such as meeting agendas, business appointments, or industry-related events attended. Consistency is also essential—annual records should reflect a pattern that aligns with legitimate business operations. This is particularly relevant in today’s tax landscape, where there’s an average of 916 tax clients per tax firm, and over 75% of tax professionals are beyond the typical retirement age according to Tatiana. This is why the Society for Financial Independence has announced the Accounting Project. As more people work beyond retirement due to inflation, maintaining clear, accurate records becomes even more critical to ensure compliance and avoid misunderstandings with the IRS.
Steps We Can All Take for Smart Tax Planning
- Identify deductible expenses before the year’s end: Review and determine which of your business expenses are eligible for tax deductions before the end of the fiscal year.
- Include diverse office-related expenses: Office expenses can encompass a variety of costs, including landscaping, entertainment, technology and computer supplies, as well as software and hardware purchases.
- Organize and save financial records: Keep all bank statements organized by category and save receipts whenever possible to support your deductions.
- Maintain accurate accounting records: Ensure that your financial records are clean and reconciled. Tatiana advises entrepreneurs and small business owners to use a dedicated credit card for business expenses to simplify tracking.
- Update your books in advance: Bring your financial records up to date well before the year’s end; aiming for a target date like November 15 can help reduce last-minute stress.
- Pay the correct amount of tax: Ensure you’re paying the right amount of tax by accurately reporting income and claiming appropriate deductions.
These practices can support organized, compliant accounting and allow you to take full advantage of tax-saving opportunities.
Additional Resources:
The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About it by Michael E. Gerber
Dream Bold: Start Smart by Tatiana Tsoir
Bold Bookkeeper Academy, Tatiana Tsoir
The Accounting Project: Education that creates more financial independence for moms, teens, first-generation immigrants and abuse survivors.
- about tatiana tsoir
Tatiana Tsoir the CEO of Linza Advisors. Over the last 20+ years, her firmed has helped hundreds of businesses become more profitable, stabilize cash flow, and pay less in taxes through a combination of tax strategies, operational planning, and their commitment to excellence. She now works with clients to help them skyrocket their profit and create a scaled and sellable business so that they never have to work again! You can find some of her services on Halftime Success under courses & finance.
It is important to not ignore the important tasks of accounting and tax preparation all year long to avoid being overwhelmed at the year’s end.
deborah johnson
Thought Leader, Keynote Speaker, Author
If you are interested in growing and learning, check out our online courses here: Online Learning
1,347 words
