Evaluating the Value Your
Tax Relationship is Providing
When you hire the help of a professional – be it a doctor, a lawyer, or a CPA, for example – the overriding expectation is that as professionals, they will provide the guidance, support and expertise you need.
But that’s not always the case.
In fact, many times as a business owner, when it comes to one of your most trusted financial allies – your tax CPA – you’re relegated to taking lead on the relationship. The relationship and subsequent service are often reactive and require you to take initiative to manage and coordinate. And when you are forced to lead the relationship, you could end up with costly surprises, or worse yet, fail to receive critical strategic advice.
The best offense is a good defense so the more proactive you tax-planning approach is, the more likely you can quickly, appropriately and accurately as deadlines approach.
And with changing tax laws, it proves even more critical to have a tax partner that can help you navigate their complexities. After all, if it’s new and unfamiliar terrain to them, it’s almost certainly foreign to the uninitiated business owner.
But it doesn’t – and shouldn’t – have to be that way.
A New Way to Find a Tax Partner
So until you can find The One, here are a few things you should expect from your tax partner.
Taxes & PPP
If you took advantage of the Payroll Protection Program (PPP) to keep your business operating during the pandemic, you’ll be glad to know that those funds will not be considered taxable income for 2020.
On December 21, 2020, Congress clarified that PPP funds would not be included in gross income and business owners will be able to deduct expenses covered by the loans from their taxes.
The language of the provision ensures that if you benefited from PPP funds you will not end up losing that benefit in the form of taxes, including capital gains taxes, at a later time.
This is great news if you used PPP funds to keep your business afloat and stay out of debt. Rather than worrying that tax season will put you right back where you started or drive you out of business, you can focus on making a strong recovery in 2021.
Tax Advantages
One hidden and immediate source of cash for many small to midsize companies is the R&D Tax Credit which creates a significant reduction to current and future federal and state tax liabilities.
A dollar-for-dollar credit against taxes owed or taxes paid, nearly every successful company is potentially eligible for an R&D tax credit of some amount, with more than $7.5 billion in federal R&D Tax Credit benefits given out annually. Additionally, businesses can take the credit for all open tax years, typically the last three or four years and the current year, with additional years available if your business is in a net operating loss or alternative minimum tax position.
Changes to Capital Gains Rates & How it Affects M&As
The newsflash here is that after 2021, the capital gains rate on income over $1 million could nearly double – from 20% to 39.6%.
If this happens, CFO Alliance anticipates that the M&A markets will be severely impacted. Business owners will no longer have an appetite to sell their businesses, as they will be forced to fork over an additional 20% to the IRS for the value and wealth they created.
If entrepreneurs stop selling their businesses, the M&A markets will be in a tailspin, as the supply of businesses for sale evaporates, leaving hungry investors without an avenue to generate required returns for their cash on hand (which is historically high, by the way).
Tax Advice
This last consideration paints with a broad brush stroke but encapsulates the larger issue with tax consultation: Getting reactive – rather than proactive – tax leadership from your tax provider. If your tax professional provides run-of-the-mill, end-of-year, down-to-the-wire tax service that leaves you scrambling to file extensions while being surprised by what you owe, it’s time for a change.
You need – and deserve – the support, guidance and transparency of a tax professional that will proactively ask you all the right questions, offer you the most financially sound expert advice and pore through each and every opportunity to save you money and keep your business in flawless financial standing.
The Bottom Line For Your Business Bottom Line
Where once business owners could settle for status-quo tax relationships, the new tax laws call for those partnerships to be scrutinized. And with taxes, unless you are a tax professional, you simply don’t know what you don’t know, making it even more critical to have a tax partner who not only knows what you don’t, but has you and your business’s best interests at heart.
How CFO Alliance Can Help with Business Tax Concerns
CFO Alliance can serve as the link between your business and your tax professional with a proactive approach and relationship to help shoulder the weight of making sure things are done right, the first time and every time.
Knowledge is power, so make sure your tax provider is proactively addressing these concepts and more with you, and if they’re not, let us help you find someone who does.