Every January, tax statements start showing up from employers, mortgage lenders, investment brokers, and so forth. Taxpayers then start the arduous process of filing their annual returns. Some do so with the nagging feeling that they are going to end up owing this year. Others are gleefully anticipating a rather sizable return. It is all part and parcel of the annual tax paying rite of late winter and early spring.
The interesting thing is that your average taxpayer doesn’t even think about taxes until January. And once the annual return has been filed, any thoughts of paying taxes are dismissed until the following year. This is really not smart. It would be far better to embrace a proactive tax planning approach that keeps taxpayers in the game year-round.
Tax planning is a lot like estate planning. It involves figuring out where you are now, where you want to be in the future, and so forth. It involves establishing strategies for limiting tax liabilities by every legal means. To do it right, you need to be involved.
According to Dallas CPA firm Gurian, PLLC, there are three primary reasons to embrace proactive tax planning regardless of the size of your income:
1. It’s Your Money
Government regulators and representatives have done a masterful job over the last several decades convincing people of the legitimacy of their financial indebtedness to the IRS. They have convinced people that the government owns the money and at any time taxes are reduced, the government is giving us a gift. None of it is true.
Every penny you earn is your money. Furthermore, government officials are your employees. Paying taxes is simply your way of contributing to the institutions tasked with the responsibilities of upholding the Constitution and maintaining law and order. The money we all contribute in taxes is our money being spent by our employees.
The point of this is to say that it makes no sense to give more of your money to government than you are legally required to give. Proactive tax management exists for that very reason.
2. Tax Laws are Complicated
Next, tax laws at both the federal and state levels are complicated. Even the CPAs at Gurian will attest to that. Proactive tax planning in conjunction with a licensed CPA is designed to help individual taxpayers and businesses limit their tax liabilities without requiring them to be tax law experts.
In simple terms, the average citizen does not have the knowledge or experience to fully understand tax laws. CPAs do. Proactive tax management works within the law to benefit taxpayers.
3. The IRS Won’t Help
Have you heard the old adage that failing to plan is actually planning to fail? It is true in the arena of taxes. And unfortunately, far too many people do plan to fail by completely ignoring proactive tax planning strategies. Not having a plan in place to mitigate tax liabilities means they just pay whatever the IRS says they owe, determined by a minimal amount of calculations.
The easiest way to understand this point is to recognize the fact that the IRS is not going to help you reduce your tax bill by one penny. They are relying on the fact that you do not understand tax law in order to get as much out of you as possible. The same goes for your state tax authorities.
Proactive tax planning is necessary to any taxpayer hoping to limit his or her tax liabilities. If you are not taking advantage of proactive tax services, it is almost guaranteed that you are paying the government too much.