"Yes, we really do exist."
This was my response to a lifestyle business owner who found out that we can assist with quarterly tax projections for her very profitable small business. When I told her what we could do and how we would provide the tax projections solution to her, she said “I didn’t know services like that existed.” We’ve been doing this for so long, that I sometimes forget that all CPAs don’t also provide it. Her prior CPA sure didn’t, and the large checks she was writing in April for $100k+ (along with penalties for not making quarterly estimated tax payments) proved it.
Tax projections can be very difficult if the business cycles of income receipt and expense payments are hard to predict. I’ve worked with law firms that had six-figure settlements direct deposited on 12.31; I’ve had small business owners be overwhelmed with checks arriving the week before New Year’s as their customers tried to reduce their own tax liability; and I’ve had businesses issue invoices during the last week of the year that were paid immediately when they thought they wouldn’t be paid until later in the following January. These things happen and you just have to roll with it. But with 90% of our small business owners, we have the tax forecasts locked in by late December and there are very few surprises.
What information do we need to have to do this highly valued work?
A clean set of financials: Of course, with our small businesses, we are preparing the accounting and the financials. We know they’re in good shape so this isn’t a difficult thing to do.
A clear set of expectations: Tax forecasting isn’t magic, but it does require the use of estimates. We always present our tax estimates with a note that says “This is exactly what it says…an estimate…and actual results will usually deviate somewhat from estimated results.” Do we sometimes hit it right on the head? Yes, we do. Do we sometimes miss it? Yes, we do. But our goal is to get the tax estimate as correct as possible based on what we know.
An engaged business owner: To put it simply, we can’t prepare tax estimates and forecasts without information. If a business owner goes dark on us, or won’t answer questions, our estimates won’t be as accurate as we’d prefer.
If your experience with tax payments is one of pain and discomfort, and you know you’re paying needless estimated tax penalties each year, why not try working with a firm that understands the intricacies of tax planning? Surprises have their places in our lives…birthday parties, anniversary presents, and cat vomit under chairs. They don’t belong on your tax returns.